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Managerial Economics Final (Batch 14)

This document contains an exam for a Managerial Economics course consisting of 4 questions. Question 1 has 10 multiple choice questions about concepts like elasticity, costs, and market structures. Question 2 has blanks to fill in about marginal revenue, production, and shutdown points. Question 3 requires short notes on topics such as marginal revenue, cross-price elasticity, and production periods. Question 4 presents problems involving elasticities, marginal revenue, and the output decisions of a perfectly competitive firm.

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Ahmed Eltayeb
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127 views

Managerial Economics Final (Batch 14)

This document contains an exam for a Managerial Economics course consisting of 4 questions. Question 1 has 10 multiple choice questions about concepts like elasticity, costs, and market structures. Question 2 has blanks to fill in about marginal revenue, production, and shutdown points. Question 3 requires short notes on topics such as marginal revenue, cross-price elasticity, and production periods. Question 4 presents problems involving elasticities, marginal revenue, and the output decisions of a perfectly competitive firm.

Uploaded by

Ahmed Eltayeb
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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University of Medical Sciences and Technology

Faculty of Business Administration


Program: BA Batch (14) Course: Managerial Economics
Final Exam
========================================================
Answer all of Questions (1 through (3), and solve ONLY TWO problems of Question (4)

Question (I): Choose the best answer: (20 Marks)


1.1 If the income elasticity of demand is –0.80 and quantity demanded
increases by 10 percent as a result of a change in income, the income
must have:
(a) increased by 8 percent.
(b) increased by 80 percent.
(c) decreased by 8 percent.
(d) decreased by 12.5 percent.
1.2 When marginal revenue is negative:
(a) MR < P.
(b) E is less than one.
(c) an increase in price causes total revenue to rise.
(d) all of the above.
1.3 The long run is distinguished from the short run in that, in the long
run:
(a) the firm no longer maximizes its profit.
(b) the quantities of all resources can be varied.
(c) output prices can vary.
(d) resource prices can vary.

1.4 According to the law of diminishing marginal product, as successive


units of a variable resource are added to some fixed resources, the
dditional output will:
(a) initially rise but will eventually decline.
(b) initially decline but will eventually rise.
(c) continually rise.
(d) continually decline.
1.5 The economically efficient input combination for producing a given
level of output:
(a) minimizes the average cost of producing the given level of output.
(b) occurs at the maximum value of the total product curve.
(c) can produce that level of output at the lowest possible total cost.
(d) is determined entirely by the production function.
1.6 Which type of cost is independent of the quantity produced?
(a) fixed cost.
(b) marginal cost.
(c) total cost.
(d) average cost.

1
1.7 If a firm is producing 7 units of output and the marginal cost for the
seventh unit is $5 and the average variable cost for the seventh unit is
$8, then the average variable cost for the sixth unit is _______.
(a) 8.
(b) 8.5.
(c) 8.7.
(d) 9.3.
1.8 In perfect competition, the product of a single firm:
(a) has many perfect complements produced by other firms.
(b) is sold to different customers at different prices.
(c) is sold under many differing brand names.
(d) has many perfect substitutes produced by other firms.
1.9 A price taker faces a perfectly:
(a) elastic supply for its good.
(b) elastic demand for its good.
(c) inelastic demand for its good.
(d) inelastic supply for its good.
1.10 A firm will shut down rather than produce if its
(a) total revenue is less than total cost.
(b) price is less than marginal cost.
(c) price is less than total variable cost.
(d) price is less than average variable cost.

Question (II): Fill in the blanks: (20 Marks)


2.1 If a firm sells an additional unit of output and total revenue rises,
then marginal revenue must be ____________ (negative, positive) and
demand must be ____________ (elastic, inelastic, unitary elastic).
Alternatively, if a firm sells an additional unit and total revenue falls,
then marginal revenue must be ____________ (negative, positive) and
demand must be ____________ (elastic, inelastic, unitary elastic).

2.2 The manager of a competitive firm will:


(a) Produce rather than shut down if the forecasted price of the product is
greater than __________.
(b) Produce and make an economic profit if the forecasted price of the
product is greater than __________.
(c) Produce at a loss if the forecasted price is less than ________ but
greater than ___________.
(d) Shut down if the forecasted price is less than ___________.

Question (III): Write short notes on each of the following: (30 marks)
3.1 Marginal revenue.
3.2 Cross-price elasticity of demand.
3.3 Short-run and long-run production periods.
3.4 Quasi-fixed input.
3.5 Perfect competition.
2
Question (IV): Answer only TWO questions from the following: (30 marks)
4.1 In the following two panels, the demand for good X shifts due to
change in income (panel A) and a change in the price of a related good
Y (Panel B). Holding the price of good X constant at $75, calculate the
following elasticities:

(a) Panel A shows how the demand for X shifts when income increases
from $33,000 to $35,000. Use the information in Panel A to calculate
the income elasticity of demand for X. Is good X normal or inferior?
(b) Panel B shows how the demand for X shifts when the price of related
good Y decreases from $80 to $60. Use the information in Panel B to
calculate the cross-price elasticity. Are goods X and Y substitutes or
complements?

4.2 Suppose you have been hired by Premier Food Products Co., (Daima),
to help the firm with its pricing and output policies. The table below
gives demand curves equations and prices of three different products
of the firm:

No. Product’s Name Demand Curve Unit Price


(1) White cheese (500g) Q x =80−0.5 P x £S 80
(2) Low-fat milk Q x =270−2.5 P x £S 60
(3) (1000ml)
Yoghurt (400g) Q x =360−4 P x £S 40

Where:
Qx : is the quantity sold of product X.
Px : is the price of product X in Sudanese pounds (£s).

(a) Find the marginal revenue (MR) equation for each of the three
products?

(b) Find the marginal revenue (level) of each product at the given price?
3
(c) Using your answer in part (b), identify the product for which you will
advise the firm to raise the level of output so as to increase total
revenue? Explain your answer.

4.3 A perfectly competitive firm faces a market-determined price of $25 for


its product.

(1) (2) (3) (4) (5) (6)


Quantit TC ATC MC MR
y
0 1000
100 2000
200 3300
300 4800
400 7000
500 9600
(a) The firm’s total costs are given in the schedule below. Fill in columns
3 and 4 for average total cost and marginal cost.

(b) Fill in columns 5 for marginal revenue.

(c) How much output should the competitive firm produce? Explain.

(d) Label column 6 “Total profit” and fill in the values. Is your answer to
part (c) correct? Explain.

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