M-III-4

1. Ans. 4
Exp. Baumol’s Sales or Revenue Maximisation Theory is based on the following assumptions:
1. There is a single period time horizon of the firm.
2. The firm aims at maximising its total sales revenue in the long run subject to a profit constraint.
3. The firm’s minimum profit constraint is set competitively in terms of the current market value of its
shares.
4. The firm is oligopolistic whose cost cures are U-shaped and the demand curve is downward sloping. Its
total cost and revenue curves are also of the conventional type.
Baumol’s findings of oligopoly firms in America reveal that they follow the sales maximisation objective.
According to Baumol, with the separation of ownership and control in modem corporations, managers seek prestige
and higher salaries by trying to expand company sales even at the expense of profits.
1. A firm attaches great importance to the magnitude of sales and is much concerned about declining sales.
2. If the sales of a firm are declining, banks, creditors and the capital market are not prepared to provide
finance to it.
3. Its own distributors and dealers might stop taking interest in it.
4. Consumers might not buy its product because of its unpopularity.
5. Firm reduces its managerial and other staff with fall in sales.
6. If firm’s sales are large, there are economies of scale, the firm expands and earns large profits.
7. Salaries of workers and management also depend to a large extent on more sales and the firm gives them
bonus and other facilities.

2. Ans. 2
Exp. Point elasticity is the price elasticity of demand at a specific point on the demand curve instead of over a
range of it.
Point Price Elasticity of Demand = (% change in Quantity)/(% change in Price)
Point Price Elasticity of Demand = (∆Q/Q)/(∆P/P)
Point Price Elasticity of Demand = (P/Q)(∆Q/∆P) .......................III
Where (∆Q/∆P) is the derivative of the demand function with respect to P.
In this example, (∆Q/∆P) = -5
For P= Rs 20, value of Q is = 500 – 20 X 5 = 400
(P/Q) = 20/400
Putting these values in III, we get the answer.

3. Ans. 4
Exp. Profit is maximized at the quantity of output where marginal revenue equals marginal cost. Marginal revenue
represents the change in total revenue associated with an additional unit of output, and Marginal cost is the change
in total cost for an additional unit of output.
Therefore, both marginal revenue and marginal cost represent derivatives of the total revenue and total cost
functions, respectively.
Total Revenue, TR= Q.(500- 5 Q)= 500.Q – 5.Qଶ
Marginal Revenue, MR= Differentiate TR w.r.t. Q= 500-10.Q
Marginal Cost, MC= Differentiate TC w.r.t. Q= 20 + 2.Q
Set marginal revenue equal to marginal cost and solve for Q.
MR = MC
20 + 2.Q = 500 - 10.Q
Q = 40

Human Peritus, www.humanperitus.com Page 1

M-III-4

4. Ans. 3
Exp. The term returns to scale relates to how well a business or company is producing.
Suppose our inputs are capital or labor, and we double each of these (m = 2). We want to know if our output will
more than double, less than double, or exactly double. This leads to the following definitions:
INCREASING RETURNS TO SCALE: When our inputs are increased by m, our output increases by more than m.
CONSTANT RETURNS TO SCALE: When our inputs are increased by m, our output increases by exactly m.
DECREASING RETURNS TO SCALE: When our inputs are increased by m, our output increases by less than m.

5. Ans. 3
Exp. The marginal efficiency of capital displays the expected rate of return on investment, at a particular given
time. The marginal efficiency of capital is compared to the rate of interest.

6. Ans. 2

7. Ans. 2

8. Ans. 2
Exp. Edwin Locke put forward the Goal-setting theory of motivation. It states that specific and challenging goals
along with appropriate feedback contribute to higher and better task performance. There are necessary conditions
that must be met to make goals effective in invoking motivation through the above mechanisms:
(1) goal acceptance/goal commitment
(2) goal specificity
(3) goal difficulty, and
(4) feedback on progress toward the goal.

9. Ans. 1
Exp. Myers-Briggs theory was developed by the mother-daughter partnership of Katharine Briggs and Isabel
Briggs Myers. It is an adaptation of the theory of psychological types produced by Carl Gustav Jung. It is based on
16 personality types. At the heart of Myers Briggs theory are four preferences:
 People and things (Extraversion or "E"), or ideas and information (Introversion or "I").
 Facts and reality (Sensing or "S"), or possibilities and potential (Intuition or "N").
 Logic and truth (Thinking or "T"), or values and relationships (Feeling or "F").
 A lifestyle that is well-structured (Judgment or "J"), or one that goes with the flow (Perception or "P").
When you put these four letters together, you get a personality type code. Having four pairs to choose from means
there are sixteen Myers Briggs personality types.

10. Ans. 1
Exp. The Adult Learning Theory - Andragogy by Malcolm Shepherd Knowles who is known for the use of the
term Andragogy as synonymous to adult education. According to Malcolm Knowles, andragogy is the art and
science of adult learning. He made 4 assumptions about the characteristics of adult learners (andragogy) that are
different from the assumptions about child learners (pedagogy). In 1984, Knowles added the 5th assumption.
1. Self-Concept: As a person matures his/her self concept moves from one of being a dependent personality
toward one of being a self-directed human being.
2. Adult Learner Experience: As a person matures he/she accumulates a growing reservoir of experience
that becomes an increasing resource for learning.

Human Peritus, www.humanperitus.com Page 2

M-III-4
3. Readiness to Learn: As a person matures his/her readiness to learn becomes oriented increasingly to the
developmental tasks of his/her social roles.
4. Orientation to Learning: As a person matures his/her time perspective changes from one of postponed
application of knowledge to immediacy of application. As a result his/her orientation toward learning shifts
from one of subject- centeredness to one of problem centeredness.
5. Motivation to Learn: As a person matures the motivation to learn is internal

11. Ans. 4
Exp. Douglas McGregor formulated Theory X and Theory Y suggesting two aspects of human behaviour at work,
or in other words, two different views of individuals (employees): one of which is negative, called as Theory X and
the other is positive, so called as Theory Y.
Chris Argyris compares two models of human behaviours and contends that almost everyone follows model 1, a
model that promotes superf-ici-ality, not losing face, defensive relati-onships etc. as opposed to a more win-win
focused model 2. Single loop learning comes from the fact that human beings, faced with adversity, just try to set
the same governing variables in a different way, as a quest for efficiency. Double loop learning is when we look at
the governing variables (norms, policies, objectives) that guide our activities and our responses to events occurring.
This is where effectiveness (as opposed to just efficiency) comes in.
Sigmund Freud suggested that human behavior is a product of the interaction between the rational and irrational
processes conceived by our mind. This led to his definition of the three aspects of personality; Id, Ego, and the
Superego.
The Id embodies the irrational part of the mind and forms the driving force behind what we want and the pleasure
that comes with the satisfaction of those particular wants. The Ego, on the other hand, represents the rational part
of the mind and forms the driving force behind the reality that we can’t always have what we want. The Superego,
which develops last, is the part of the mind that records and stores values learned from the environment. It functions
by attempting to enforce the rules learned.

12. Ans. 2
Exp. In a landmark book called "Strategy and Structure", noted business historian Alfred D. Chandler studied the
origins of the largest U.S. firms. According to Chandler, the strategy determines structure and environmental
changes result in strategic options, which may, in turn, necessitate changes in organizational structure. More
specifically, he argued that structure tends to follow the growth strategy of an organization.

13. Ans. 3

14. Ans. 2
Exp. All of them are “Off the Job” training methods. Few other Off the Job training methods are:
 Vestibule training
 Sensitivity training (also known as T-group, T standing for training)
 Transactional Analysis
 Classroom Lecture
 Programmed Learning or Programmed instruction
 Simulation Exercises: Management Games, Case Study, Role Playing, In-basket training

15. Ans. 3
Exp. The list of approaches to industrial relations are:
SYSTEMS APPROACH: (Dunlop's approach)

Human Peritus, www.humanperitus.com Page 3

M-III-4
The systems approach views the Industrial relations as a system in itself with the following elements Participants
The actors taking part in the Industrial Relations process. There 3 actors: (a) Workers and their
organizations/representative (b) Managers and their organization/representatives (c) The government and its
specialized agencies for enactment and implementation of laws.
The Environment constituting the technological, economic and social (power distribution) sub systems in which the
organization operates. The environment influences the relations between employer and employee
The Ideology - All the participants have their own sets of beliefs and values, which shape the interaction between
them, and consequently the output of such a relationship.
The Structure - The structure consists of rules and procedures established for the interaction of the actors in
Industrial relations, collective bargaining procedures, conflict resolutions and grievance settlement practices
PLURALIST APPROACH
Flanders, Clegg and Fox are some of the important exponents of the pluralist approach to the study of Industrial
Relations. This approach views the organization as consisting of different conflicting interest groups or stakeholders
like employees, shareholders, consumer's community, managers, government etc. It emphasizes on the need for
management to regulate and balance the interests and interaction of all the partners to Industrial relations.
MARXIST APPROACH or RADICAL APPROACH
All Marxist literature is based on the class conflict between haves and has notes, between the controller and the
controlled and between the exploiter and the exploited. The Marxian approach to industrial relations, also, therefore
derives its strength from the class conflict analysis of industrial relations. According to some Marxists, Industrial
Relations are basically market relations. It views industrial relations as a struggle between worker and owners,
employer and employees, between capital and labour, with a view to exert greater influence on each other.
SOCIOLOGICAL APPROACH
Study of Industrial relations can be seen as analysis of individual and group behavior in the context of social
dynamics, within organizations. The sociological aspects of human relationships like group dynamics, migration,
family norms and status, stress and strain, delinquency therefore affect industrial relations.
GANDHIAN APPROACH
Gandhi believed in the concept of cooperation, non-violence and trusteeship. He laid great emphasis on mutual
respect and concern by the participants to Industrial relations. His philosophy entailed peaceful coexistence of
capital and labour and called for the resolution of conflict in non-violent ways.
Gandhiji accepted the workers right to strike, but only in extreme situation when employers fail to respond to all
kinds of moral appeals. Even strike, if it takes place should be peaceful and non violent. He enunciated the principle
of trusteeship, implying that the owner of wealth is actually the custodian and keeps the wealth as a trustee of
society, to which it actually belongs, and the individual workers are expected to be co-trustees too.
PSYCHOLOGICAL APPROACH
The psychologist study Industrial relations as an outcome of the relationship between human beings in the form of
worker, manager or owner. They hold the relationship to be arising out of fulfillment or non-fulfillment of certain
promises or expectation between the parties concerned (which they connote as psychological contract) as a result
of exchanges and transactions taking place between them. They also view the problem of industrial relations as
deeply routed in the perception, attitudes, and interest of the participants.
HRM HRD APPROACH
The human relations approach to the study of industrial relations lays stress on the policies and techniques to
improve employee morale, efficiency and job satisfaction. It encourages small work-groups to exercise considerable
control over its immediate environment. The human relations school was founded by Elton Mayo and later,
propagated by Roethlisberger and others. When human resources are not properly managed the problem of human
relations surface. It can be managed by appreciating the dynamics of human behavior, both at individual and group

Human Peritus, www.humanperitus.com Page 4

M-III-4
level. This approach ends to satisfy individual and collective needs of workers - economic, physiological, safety,
security, social and psychological, as a step to harmonies the interactions and exchanges at the workplace.
OXFORD APPROACH
According to this approach, the industrial relations system is a study of institutions of job regulations and the
stress is on the substantive and procedural rules as in Dunlop’s model. Flanders, the exponent of this approach,
considers every business enterprise as a social system of production and distribution, which has a structured
pattern of Conceptual Framework of relationships. The “institution of job regulation” is categorised by him as
internal and Employment Relations external – the former being an internal part of the industrial relations system
such as code of work rules, wage structure, internal procedure of joint consultation, and grievance procedure. He
views trade unions as an external organisation and excludes collective agreements from the sphere of internal
regulation. According to him, collective bargaining is central to the industrial relations system.
The “Oxford Approach” can be expressed in the form of an equation:
r = f (b) or r = f (c)
where, r = the rules governing industrial relations
b = collective bargaining
c = conflict resolved through collective bargaining.
INDUSTRIAL SOCIOLOGY APPROACH
G. Margerison, an industrial sociologist, holds the view that the core of industrial relations is the nature and
development of the conflict itself. Margerison argued that conflict is the basic concept that should form the basis
of the study of industrial relations. The author criticised the prevalent approach to industrial relations, which was
more concerned with studying the resolution of industrial conflict than its generation; with the consequences of
industrial disputes than on their causes. According to this school of thought, there are two major conceptual levels
of industrial relations. One is the intra-plant level where situational factors, such as job content, work task and
technology, and interaction factors produce three types of conflict – distributive, structural, and human relations.
These conflicts are being resolved through collective bargaining, structural analysis of the socio-technical systems
and man-management analysis respectively. The second level is outside the firm and, in the main, concerns with
the conflict not resolved at the intraorganisational level. However, this approach rejects the special emphasis
given to rule determination by the “systems and Oxford models”.
WEBER’S SOCIAL ACTION APPROACH
The social action approach of Weber has laid considerable importance to the question of control in the context of
increasing rationalisation and bureaucratisation. Closely related to Weber’s concern related to control in
organisations was his concern with “power of control and dispersal”. Thus a trade union in the Weber’s scheme of
things has both economic purposes as well as the goal of involvement in political and power struggles. Some of the
major orientations in the Weberian approach have been to analyse the impact of techno-economic and politico-
organisational changes on trade union structure and processes, to analyse the subjective interpretation of
workers’ approaches to trade unionism and finally to analyse the power of various components of the industrial
relations environment – government, employers, trade unions and political parties. Thus the Weberian approach
gives the theoretical and operational importance to “control” as well as to the power struggle to control
work organisations – a power struggle in which all the actors in the industrial relations drama are caught up.
UNITARY APPROACH
The unitary perspective is based on the assumptions that the organization is, or if it is not, then it should be, an
integrated group of people with a single authority/loyalty structure and a set of common values, interests and
objectives shared by all members of the organization. Managements’ prerogative (i.e., its right to manage, make
decisions) is regarded as legitimate, rational and accepted, and any opposition to it (whether formal or informal,
internal or external) is seen as irrational.

Human Peritus, www.humanperitus.com Page 5

M-III-4
16. Ans. 3
Exp. The Employees Slate Insurance Act, 1948 was enacted with the object of introducing a scheme of health
insurance for industrial workers. The scheme envisaged by it is one of compulsory State Insurance providing for
certain benefits in the event of sickness, maternity and employment injury to workmen employed in or in connection
with the work in factories other than seasonal factories.

17. Ans. 1
Exp. Mandatory Subjects of Bargaining: Certain terms and conditions of employment that must be negotiated
between management and unions are called mandatory subjects of bargaining. An employer may not make a change
in a mandatory bargaining subject without providing the union prior notice and an opportunity to bargain over the
desired change. Neither the employer nor the union can refuse to bargain over mandatory subjects of bargaining.
Examples of subjects that are mandatory for bargaining include wages, benefits such as health care and pension,
grievance and arbitration procedures, contract length, seniority, holidays, union security clauses, profit sharing
plans, strikes and lock outs, management rights clauses, and other terms and conditions of employment.
An illegal subject of bargaining is one where, even if it is included in a collective bargaining agreement, it is
unenforceable.

18. Ans. 2
Exp. Minnesota Rate of Manipulation Test is a hand-eye coordination and manual dexterity test for the evaluation
of occupational fitness, disability evaluation and in rehabilitation.
Stanford-Binet Test is a examination meant to gauge intelligence through five factors of cognitive ability or
memory. These five factors include fluid reasoning, knowledge, quantitative reasoning, visual-spatial processing
and working memory. Both verbal and nonverbal responses are measured.
The Myers–Briggs Type Indicator (MBTI) is questionnaire with the purpose of indicating differing psychological
preferences in how people perceive the world around them and make decisions. Thus it is personality test. The
MBTI was constructed by Katharine Cook Briggs and her daughter Isabel Briggs Myers.

19. Ans. 4
Exp. A management assessment center is a series of tests, interviews, simulations, and exercises designed to
predict how well a management candidate will perform in a specific role. In-basket exercises, Leaderless group
discussion and Management games are techniques used along with psychometric tests, case analysis, individual
presentations, interviews, and projective tests.

20. Ans. 2
Exp. Career can be defined as a general course of action a person chooses to pursue throughout his or her working
life
Career Management is a process for enabling employees to better understand and develop their career skills and
interests and to use these skills and interests most effectively both within the company and after they leave the firm.
Career Development is the lifelong series of activities (such as workshops) that contribute to a person’s career
exploration, establishment, success, and fulfillment.
Career Planning is the deliberate process through which someone becomes aware of his or her personal skills,
interests, knowledge, motivations, and other characteristics; acquires infor-mation about opportunities and choices;
identifies career-related goals; and establishes action plans to attain specific goals.

21. Ans. 4
Exp. All of them are grounds of dismissal.

Human Peritus, www.humanperitus.com Page 6

M-III-4

22. Ans. 1

23. Ans. 3
Exp. The capital asset pricing model (CAPM) relates the risk measured by beta to the level of expected or required
rate of return on a security. The model, also called the security market line (SML), is given as follows:
‫ݎ‬௝ = ‫ݎ‬௙ + ܾ(‫ݎ‬௠ − ‫ݎ‬௙)
where
‫ݎ‬௝ =the expected (or required) return on security j (in our case is 13%)
‫ݎ‬௙=the risk-free security (in our case is 5%)
‫ݎ‬௠ =the expected return on the market portfolio (in our case is 10%)
b=beta, an index of nondiversifiable (noncontrollable, systematic) risk
Thus Beta is = (13-5)/(10-5)= 1.6

24. Ans. 3
ଶ×୘୭୲ୟ୪ୈୣ୫ ୟ୬ୢ×୓୰ୢୣ୰୧୬୥େ୭ୱ୲
Exp. EOQ is defined by the formula: EOQ = ට .
ୌ୭୪ୢ୧୬୥େ୭ୱ୲

ଶଡ଼ସ଼଴଴ଡ଼଼
= ට (where 4800 is total demand for 12 months)
଴.ଶହଡ଼ଵଶ
= 160

25. Ans. 1

Exp.

26. Ans. 3

Exp.

In our example, Earning Per Share, E= 200000/50000= Rs 4

Human Peritus, www.humanperitus.com Page 7

M-III-4
Payout Ratio= 40%, thus Retention Ratio= 60%
Rate of return= 200000/1000000= 0.20 (20%)
Cost of Capital= 0.16
Growth Rate= 0.20 X 0.60= 0.12
Putting these values in formula, we get Rs 40

27. Ans. 3
Exp.

28. Ans. 4
Exp. Spinoff is a way to get rid of underperforming or non-core business divisions that can drag down profits. The
spinoff becomes a company of its own and must also file paperwork with the SEBI. Shares in the new company are
distributed to parent company shareholders.
Split-up is a transaction in which a company spins off all of its subsidiaries to its shareholders & ceases to exist.
The entire firm is broken up in a series of spin-offs. The parent no longer exists and only the new offspring survive.
Sell-off is selling a part or the entire firm by any one of means i.e. sale, liquidation, spin-off & so on or
Split-off is a transaction in which some, but not all, parent company shareholders receive shares in a subsidiary, in
return for relinquishing their parent company’s share. In other words some parent company shareholders receive
the subsidiary’s shares in return for which they must give up their parent company shares. Feature of split-offs is
that a portion of existing shareholders receives stock in a subsidiary in exchange for parent company stock.
Equity Carve-Out is a transaction in which a parent firm offers some of a subsidiaries common stock to the general
public, to bring in a cash infusion to the parent without loss of control. In other words equity carve outs are those
in which some of a subsidiaries shares are offered for a sale to the general public, bringing an infusion of cash to
the parent firm without loss of control. Equity carve out is also a means of reducing their exposure to a riskier line
of business and to boost shareholders value.
In a spin off, distribution is made pro rata to shareholders of the parent company as a dividend, a form of non cash
payment to shareholders. In equity carve out; stock of subsidiary is sold to the public for cash which is received by
parent company

29. Ans. 1
Exp. Spot Market The term spot exchange refers to the class of foreign exchange transaction which requires the
immediate delivery or exchange of currencies on the spot. In practice the settlement takes place within two days in
most markets. The rate of exchange effective for the spot transaction is known as the spot rate and the market for
such transactions is known as the spot market.

Human Peritus, www.humanperitus.com Page 8

M-III-4
Forward Market The forward transactions is an agreement between two parties, requiring the delivery at some
specified future date of a specified amount of foreign currency by one of the parties, against payment in domestic
currency be the other party, at the price agreed upon in the contract. The rate of exchange applicable to the forward
contract is called the forward exchange rate and the market for forward transactions is known as the forward market.

30. Ans. 4
Exp. Purchase consideration means the price payable by Transferee Company to the Transferor Company for
acquiring its business. It involves aggregate of the shares and other securities issued and the payment made in the
form of cash or other assets by Transferee Company to the shareholders of the transferor company.
Down Value Method of Depreciation: It is also known as Reducing Balance or Reducing Installment Method
or Diminishing Balance Method. Under this method, the depreciation is calculated at a certain fixed percentage
each year on the decreasing book value commonly known as WDV of the asset (book value less depreciation).
The use of book value (the balance brought forward from the previous year) and fixed rate of depreciation result
in decreasing depreciation charges over the life span of the asset.
Last-In, First-Out, LIFO is one of the common techniques used in the valuation of inventory on hand at the end
of a period and the cost of goods sold during the period. LIFO assumes that goods which made their way to
inventory (after purchase, manufacture etc.) later are sold first and those which are manufactured or acquired early
are sold last. Thus LIFO assigns the cost of newer inventory to cost of goods sold and cost of older inventory to
ending inventory account. This method is exactly opposite to first-in, first-out, FIFO method.
Internal rate of return (IRR) is the discount rate often used in capital budgeting that makes the net present value
of all cash flows from a particular project equal to zero.

31. Ans. 1
Exp. To buy an option, an investor must pay an option premium. The option premium can be thought as the sum
of two different numbers that represent the value of the option. The first is the current value of the option, known
as the intrinsic value. The second is the potential increase in value that the option could gain over time, known as
the time value.
The intrinsic value of an option represents the current value of the option, or in other words how much in the
money it is.
The time value of an option is an additional amount an investor is willing to pay over the current intrinsic value.
Investors are willing to pay this because an option could increase in value before its expiration date.
Time value is calculated by taking the difference between the option’s premium and the intrinsic value, and this
means that an option’s premium is the sum of the intrinsic value and time value:
Time Value = Option Premium - Intrinsic Value

32. Ans. 4
Exp. If a capital asset pricing model (CAPM) analysis indicates that the portfolio should have earned 5% (based
on risk, economic conditions and other factors), but instead earned only 3%, then the alpha of the portfolio would
be -2%. In CAPM, alpha is the rate of return that exceeds what the model predicted. Investors generally prefer an
investment with a high alpha.
Beta measures a stock's volatility - the degree to which its price fluctuates in relation to the overall market. In other
words, it gives a sense of the stock's market risk compared to the greater market.
The baseline number for alpha is zero (investment performed exactly to market expectations), but the baseline
number for beta is one. A positive alpha value indicates that a given stock is performing better than expected (under
priced), while a negative alpha value indicates that the stock is performing worse than expected (over priced).

Human Peritus, www.humanperitus.com Page 9

M-III-4
A beta of one is an indication that the security's price moves exactly as the market moves. If the beta is less than
one, the security experiences less severe price swings than the market. Conversely, a beta above one means that the
security's price is more volatile than the market as a whole.

33. Ans. 2
Exp. Price discrimination occurs when a company sells a product or service at two or more prices that do not reflect
a proportional difference in costs. In first-degree price discrimination, the seller charges a separate price to each
customer depending on the intensity of his or her demand. In second-degree price discrimination, the seller charges
less to buyers who buy a larger volume. In third-degree price discrimination, the seller charges different amounts
to different classes of buyers, as in the following cases:
Customer-segment pricing – Different customer groups are charged different prices for the same product or
service. For example, museums often charge a lower admission fee to students and senior citizens.
Product-form pricing – Different versions of the product ‘are priced differently but not proportionately to their
respective costs
Image pricing – Some companies price the same product two different levels based on image differences at. A
perfume manufacturer can put the perfume in one bottle, give it a name and image, and price it at Rest. 50. It can
put the same perfume in another bottle with a different name and image and price it at Rs.200.
Channel pricing – Coca-Cola carries a different price depending on whether it is purchased ill a fine restaurant, a
fast-food restaurant, or a vending machine.
Location pricing – The same product is priced differently at different locations even though the cost of offering at
each location is the same. A theater varies its seat prices according to audience preferences for different locations.
Time pricing – Prices are varied by season, day, or hour. Public utilities vary energy rates to commercial users by
time of day and weekend versus weekday. Restaurants charge less to “early bird” customers.

34. Ans. 4
Exp. Marketing Channel or Distribution Channel is a set of interdependent organizations that help make a product
or service available for use or consumption by the consumer or business us every other market affecter.
The producers and intermediaries need to agree on the terms and responsibilities of each channel member. They
should agree on price policies, conditions of sale, territorial rights and specific services to be performed by each
party. The producer must establish a list price and a fair set of discounts for intermediaries. It must define each
channel member’s territory, and it should be careful about where it places new resellers.

35. Ans. 2
Exp. According to Sigmund Freud’s psychoanalytic theory of personality, personality is composed of three
elements–the id, the ego and the superego–work together to create complex human behaviors.
The Id
According to Freud’s psychoanalytic theory of personality, the id is the personality component made up of
unconscious psychic energy that works to satisfy basic urges, needs, and desires. The id operates based on the
pleasure principle, which demands immediate gratification of needs. The id is the only component of personality
that is present from birth. This aspect of personality is entirely unconscious and includes of the instinctive and
primitive behaviors. According to Freud, the id is the source of all psychic energy, making it the primary component
of personality.
The Ego
The ego is part of personality that mediates the demands of the id, the superego and reality. The ego prevents us
from acting on our basic urges (created by the id), but also works to achieve a balance with our moral and idealistic
standards (created by the superego). The ego operates based on the reality principle (the reality principle weighs the

Human Peritus, www.humanperitus.com Page 10

M-III-4
costs and benefits of an action before deciding to act upon or abandon an impulse.), which works to satisfy the id’s
desires in a manner that is realistic and socially appropriate.
The Superego
The superego is the component of personality composed of our internalized ideals that we have acquired from our
parents and from society. The superego works to suppress the urges of the id and tries to make the ego behave
morally, rather than realistically.

36. Ans. 4
Exp. After extensive research, Zeithaml, Parasuraman and Berry found five dimensions customers use when
evaluating service quality. They named their survey instrument SERVQUAL. The five SERVQUAL dimensions
are:
 TANGIBLES-Appearance of physical facilities, equipment, personnel, and communication materials
 RELIABILITY-Ability to perform the promised service dependably and accurately
 RESPONSIVENESS-Willingness to help customers and provide prompt service
 ASSURANCE-Knowledge and courtesy of employees and their ability to convey trust and confidence
 EMPATHY-Caring, individualized attention the firm provides its customers

37. Ans. 4
Exp. Top five methods of determining an advertising budget
Method # 1. The Percentage of Sales Approach:
In this method, the sales value of the preceding year is first taken and then the expected sales during the year in
question are arrived at. Thereafter, some percentage of the expected sales is consid¬ered and this is known as the
percentage of sales approach.
Method # 2. The All-You-Can Afford Approach:
Under this approach, a company spends as much on advertising as it can afford.
Method # 3. The Return on Investment Approach:
This approach treats advertisement as a capital investment rather than as a more current expendi¬ture.
Method # 4. The Objective and Task Approach:
This method is also known as the research objective method. This method calls upon marketers to develop their
promotion budgets by defining their specific objectives, determining the tasks that must be performed to achieve
these objectives and estimating the cost of performing these tasks. The sum of these costs in the proposed budget.
Method # 5. The Competitive Parity Approach:
A firm sets its budget solely depending upon the basis of competitors expenditure. The advertising cost is decided
on the basis of spending for advertising by the competitors in the same industry.

38. Ans. 1
Exp. An approach towards achieving conformance in services is to identify various gaps that occur during the
service process.
Knowledge Gap: This gap may occur at the beginning of the service process, when marketers assess what the
customers’ needs and expectations are from a particular service. The gap happens when there is disparity between
the customers’ needs/ expectations and what the marketers believe them to be.
Standards Gap: The next step of the service process is management’s definition of what the target segment needs
and expects. This translates into setting down standards to ensure that the service delivery meets those expectations.
The gap occurs when there is a disparity between the management’s perceptions and the actual delivery standards
that are established by the service provider.

Human Peritus, www.humanperitus.com Page 11

M-III-4

Delivery Gap: The next step for the service provider is to strive to deliver the service according to its set delivery
standards. The delivery gap takes place when the actual performance ability of the service provider does not match
the standards set down for service delivery.
Internal Communications Gap: The next step is for the marketing team to formulate marketing and promotional
campaigns. They promote the service on the basis of specific features, quality level and so on. The internal
communication gap takes place when the campaigns overpromise. In other words, the promotional campaigns covey
more in terms of features, quality, and performance than what the service provider can actually deliver.
Perceptions Gap: The next step entails the delivery of the service to the customers. The possible gap that may
occur at this stage is in terms of what is actually delivered and how customers perceive what is delivered.
Interpretation Gap: In advance of delivery, the service providers try to communicate certain promises to the
customers. The interpretation gap happens when what the service provider promises is interpreted differently by the
customers.
Service Gap: It is the most severe gap that undermines the entire service process. In a way, it is a culmination of
the other six kinds of gaps. When there is a disparity between what the customer expected from the service and how
he or she perceived the eventual service delivery.

39. Ans. 1
Exp. The product life cycle concept indicates that the product is born or introduced, grows, attains maturity and the
point of saturation in that market and then sooner or later it is bound to enter its declining stage e.g., decay in its
sales (history).
1. Introduction: In the early stage when the product is introduced in a market, sales revenue begins to grow but the
rate of growth is very slow. Profit may not be there as we have low sales volume, large production and distribution
costs.
We may require heavy advertising and sales promotion. Products are bought cautiously on a trial “basis.
Weaknesses may be revealed and they must be promptly removed. Cost of market development may be
considerable. In this stage product development and design are considered critical.
2. Growth: During the growth stage, the rate of increase of sales turnover is very rapid. Profits also increase at an
accelerated rate. In spite, of competition, we may have rising sales and profits.
The firm gives top priority to sales volume and quality maintenance may have secondary preference. For marketing
success, manufacturing and distribution efficiency are vital factors. In this stage effective distribution and
advertising are considered as key factors.
3. Maturity: During this stage keen competition brings pressure on prices. Increasing, marketing expenditure and
falling prices (in the battle for market share) will reduce profits. Additional expenditure is involved in product
modification and improvement or broadening of product line.
Marketers have to adopt measures to stimulate demand and face competition through additional advertising and
sales promotion. Overall marketing effectiveness becomes the key factor in the stage of maturity.
4. Saturation: The saturation point occurs in the market when all potential buyers are using the product and we
have only replacement sales. Consumption achieves a constant rate and the marketers have to concentrate
exclusively on a fight for market share (with higher marketing expenses). Prices may fall rapidly and profit margins
may become small unless the firm makes substantial improvements and realizes cost economies.
5. Decline Stage: Once the peak or saturation point is reached, product inevitably enters the decline stage. It may
be gradually displaced by some new innovation. Sales drop severely, competition dwindles, and even then the
product cannot stand in the market.
It may be priced out of the market by other new innovations. At this stage price becomes the primary weapon of
competition, and we have to reduce considerably expenditure on advertising and sales promotion. Cost control
becomes the key to generate profits.

Human Peritus, www.humanperitus.com Page 12