EXAMINATION PAPER

FACULTY : BUSINESS AND ACCOUNTANCY

COURSE : MASTER OF BUSINESS ADMINISTRATION (MBA)

YEAR/ SEMESTER : FIRST YEAR / SEMESTER ONE

MODULE TITLE : BUSINESS ECONOMICS

CODE : ECO 501

DATE : 20-AUG, 2018, MONDAY

TIME ALLOWED : 3 HOURS

START : 1:00 PM FINISH : 4:00 PM

Instruction to candidates
1. This question paper has THREE (3) Section

2. Answer ALL questions in Section A, MCQ.

3. Answer 5 questions in Section B, MSAQ.

4. Answer 2 questions in Section C, MEQ.

5. No scripts or answer sheets are to be taken out of the Examination Hall.

6. For Section A, answer in the OMR form provided.

Do not open this question paper until instructed

1
 SECTION A
Multiple Choice Questions (30*1=30)

1. Business economics is concerned with:

a. Allocate efficiency
b. Consumption pattern
c. Income of households
d. Profitable economics

2. Basic economic issue is:

a. Change in living standard
b. What and how to produce as well as to whom should be produced
c. Increase in the real income of the people
d. Increase in import

3. A industry can be defined as:

a. Group of firms producing homogenous product
b. Homogenous production units
c. Small production unit
d. Production unit established for profit

4. A gap between TR and TC when negative, it is the symbol of:

a. Profit
b. Loss
c. Real income
d. Reinvestment

5. Abnormal profit is:

a. When p is less than c
b. When p and c are equal
c. When p is greater than c
d. All of the above

6. If the price elasticity of demand is less than1 then:

a. MR will be positive
b. MR will be negative
c. MR will be zero
d. None of the above

2
7. If income elasticity of demand is 0.3, then the commodity is:
a. Inferior
b. Luxurious
c. Neutral
d. Necessity

8. If the price elasticity of demand is 0.6, then the firm should :

a. Increase the price
b. Decrease the price
c. No change in price
d. None of the above

9. Which one is the traditional objective of the firm:

a. Profit maximization
b. Value maximization
c. Sales revenue maximization
d. Utility maximization

10. The law of diminishing marginal returns refers to the general tendency
for…………… to eventually diminish as more of the variable input is employed,
given the quantity of fixed inputs.
a. marginal cost
b. average product
c. marginal product
d. average total cost

11. In a planned or command economy, all the economic decisions are taken by the:
a. Consumers
b. Workers
c. Government
d. Voters

12. Isoquants that are downward sloping straight line exhibit:

a. An increasing marginal rate of technical substitution
b. A decreasing marginal rate of technical substitution
c. A constant marginal rate of technical substitution
d. A marginal rate of technical substitution that cannot be determined

3
13. Cost-output relationship facilitates many managerial relationship such as:
a. Formulating the standards of operations
b. Formulating the rational policy on plant size
c. Formulating a policy of profit prediction
d. All of these

14. A fixed cost is a cost which:

a. Varies in total with changes in the level of activity
b. Remains constant per unit with changes in the level of activity
c. Varies inversely in total with changes in the level of activity
d. Remains constant in total with changes in the level of activity

15. When a price floor is above the equilibrium price:

a. Quantity demanded will exceed quantity supplied
b. Quantity supplied will exceed quantity demanded
c. The market will be in equilibrium
d. This is a trick question because price floor generally exist below the
equilibrium price

16. Entrepreneurial judgment:

a. Is necessary to make business rule decisions when no fixed decision can be
used
b. is fully incorporated into modern economic models of business behavior
c. requires complex decisions involving uncertainty, discovery and business
judgment
d. both ‘a’ and ‘c’

17. If marginal cost exceeds marginal revenue, a price-taker firm should:

a. Expand output
b. Reduce output
c. Lower its price
d. Both ‘a’ and ‘c’

18. Variable costs are costs that increase with output. These costs reflects the use of :
a. Labor
b. Capital
c. Land
d. All of the above
4
19. When a perfectly competitive firm makes a decision to shut down, it is most
likely that :
a. Price is below the minimum of average variable cost
b. Fixed costs exceed variable costs
c. Average fixed costs are rising
d. Marginal cost is above average variable cost

20. Firms operating constantly at 100% capacity:

a. are common
b. are the exception rather than the rule
c. have no fixed costs
d. have no variable costs

21. The price charged by oligopolists:

a. Will equal the equilibrium price in a price takers market if the oligoplists
collude
b. Will equal the monopoly price if the v do not collude
c. Will generally lie between the monopoly and competitive market
equilibrium prices
d. Will be the same whether the oligopolists cooperate with one another or not

22. If GNP is 18% higher than it was last year and the rate of inflation is 10%. Then,
the GNP this year has grown by:
a. 5 %
b. 6 %
c. 7 %
d. 8 %
23. The intermediate goods are excluded from GNP because:
a. They create the problem of duplication
b. Their value is insignificant
c. They are consumed by the poor people
d. They are used in the village
24. In international price discrimination, the price of the product is:
a. High
b. Low
c. Average
d. Difficult to calculate

5
25. In public goods, government should:
a. Provide subsidy
b. Impose tax
c. Extend both simultaneously
d. Free of government interventition

26. Enlivenment issue is related with:

a. Direct cost
b. Derived cost
c. Indirect cost
d. Explicit cost

27. Market failure may be caused by:

a. No government regulation
b. Control of government
c. More demand and less supply
d. Expected growth is less than anticipated

28. Prerequisites for price discrimination are all of the following EXCEPT:
a. Division of market
b. Heterogeneous product
c. Identical product
d. Market control

29. Dumping is often referred to a pricing:

a. Which is higher than the fair value of the product
b. Which is just equal to the fair value of the product
c. Which is below the fair value of the product
d. which is more than the marginal cost of production

30. Which of the following is true for capital goods?

a. They are demanded for their own sake
b. They are demanded by the final consumers
c. Their demand is derived
d. Their demand is direct

6
 SECTION B
Short Answers Questions
Answer any five (5) questions out of seven (7) questions (5*6=30)

1. Illustrate the dominant strategy with suitable example.

2. Discuss the techniques of forecasting.

3. How the existence of externalities causes market failure? Explain.

4. Illustrate the Nash equilibrium with suitable example.

5. Define cross elasticity of demand with its types.

6. Show how the production possibility frontier illustrates the concept of scarcity, choice
and opportunity cost.

7. Describe the quantitative methods of demand forecasting.

7
 SECTION C
Long Answer Questions
Attempt any two (2) questions out of three (3) questions. (2*20=40)

1. Explain about various types of pricing practices and which one in widely used around
the world, submit some relevant logics with your answer.

2. Distinguish between short-run production function and long-run production function.

The law of diminishing returns is sometimes known as the law of variable
proportions. How? Explain the law with example and figure and give your suggestion
where a rational producer should operate in production and why? (6+10+4)

3. Nepalese fashion home has demand function, P = 20 – Q and total cost function C =
Q2 + 8Q + 2, determine the optimal output (Q), price (P), total revenue (R) and total
profit (π)
a. Under profit maximization. (5)
b. Under sales revenue maximization. (5)
c. Under sales revenue maximization subject to the profit constraint of Rs. 10. (5)
d. Why sales revenue maximizing output is greater than profit maximizing
output? (5)

****BEST OF LUCK****