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Master of Business Administration- MBA Semester 1 Winter 2014

MB0042 – Managerial Economics

Q1. What is production function and its uses? Explain the two types of production functions.

Answer: The entire theory of production centres revolves around the concept of production

function. A “production function” expresses the technological or engineering relationship

between physical quantity of inputs employed and physical quantity of outputs obtained by a

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Q2. Monopoly is the situation there exists a single control over the market producing a

commodity having no substitutes with no possibilities for anyone to enter the industry to

compete. In that situation, they will not charge a uniform price for all the customers in the

market and also the pricing policy followed in that situation.

Answer: Monopoly may be defined, as a condition of production in which a single firm has the

power to fix the price of the commodity or the output of the commodity.

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Q3. A cost-schedule is a statement of variations in costs resulting from variations in the levels of

output and it shows the response of costs to changes in output. If we represent the relationship

between changes in the level of output and costs of production, we get different types of cost

curves in the short run. Define the kinds of cost concepts like TFC, TVC, TC, AFC, AVC, AC

and MC and its corresponding curves with suitable diagrams for each.

Answer: A cost-schedule is a statement of variations in costs resulting from

variations in the levels of output. It shows the response of costs to changes

in output.

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Q4. Inflation is a global Phenomenon which is associated with high price causes decline in the

value for money. It exists when the amount of money in the country is in excess of the physical

volume of goods and services. Explain the reasons for this monetary phenomenon.

Answer: . Inflation is the percentage change in the value of the Wholesale Price Index (WPI) on

a year-on year basis. It refers to the average rise in the general level of prices and fall in the value

of money.

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Q5. Discuss the practical application of Price elasticity and Income elasticity of demand.

Answer: Practical applications of price elasticity are as follows:

• Production planning – It helps a producer to decide about the volume of production. If the

demand for his products is inelastic, specific quantities can be produced while he has to produce

different quantities, if the demand is elastic.

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Q6. Discuss the scope of managerial economics.

Answer: Managerial Economics: Managerial economics is a science that deals with the

application of various economic theories, principles, concepts and techniques to business

management in order to solve business and management problems.

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