EXAMINATION PAPER

FACULTY : BUSINESS ADMINISTRATION

COURSE : MASTER OF BUSINESS ADMINISTRATION (MBA)

YEAR/ SEMESTER : FIRST YEAR / SEMESTER FIRST

MODULE TITLE : BUSINESS ECONOMICS

CODE : ECO 501

DATE : 28-August-2016

TIME ALLOWED : 3 HOURS

START : 12:00 NOON FINISH : 3:00 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

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 SECTION A

Multiple Choice Questions (30*1=30)

1. Economics is the study of:

a. production technology
b. Consumption Decision
c. how society decides what, how, and for whom to produce
d. the best way to run society

2. Economy where major resources are under the control of individuals is the
characteristic of ……….
a. Free Economy
b. Controlled Economy
c. Mixed Economy
d. Command Economy

3. Normative economics forms …………………. based on.

a. positive statements, facts
b. opinions, personal values
c. positive statements, values
d. opinions, facts

4. Which of the following are legal constraints of a firm?

a. Minimum wages Law
b. Raw materials
c. Health & safety standards
d. Skilled human resources

5. ‘Profit is the dynamic income and no profit results in static world’. Who said
so?
a. F.H. Knight
b. E Chamberlain
c. Joan Robinson
d. J. B Clark

6. If the price elasticity of demand is less than one then,

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

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7. Demand function is said to be nonlinear if its slope all along the demand curve
is….
a. Constant
b. Variable
c. Zero
d. None of above

8. If income elasticity of demand is -2.1, then the commodity is:

a. Inferior
b. Luxurious
c. Neutral
d. Necessity

9. If the price elasticity of demand is -1.5, then the firm should :

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

10. Which one is the traditional objective of the firm?

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

11. demand has following components:

a. Desire and schedule
b. Desire and willingness
c. Desire, willingness and ability to pay
d. None of the above

12. Private Firm basically like to optimize:

a. Value
b. Sales
c. Profit
d. Welfare

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13. Total cost of production in developed country basically:
a. Lower
b. Higher
c. Equal with developed economies
d. Difficult to calculate

14. Labor intensive technology is favorable in:

a. Underdeveloped country
b. European countries
c. Developed country
d. Least developed country

15. For equilibrium in the market, it is the necessary condition:

a. First order derivative should be zero
b. Second order derivative should be negative
c. Both a & b
d. Mc cuts MR from its below

16. Why there is the use of hypothesis in economics?

a. To show the relationship
b. To describe variables
c. Describe concretely
d. Explain abstract concept

17. In the long run production function:

a. All factors are variables
b. All are constant
c. Only one factor is variable
d. All are constant

18. Which one strategy is appropriate to increase output:

a. Increase in buildings
b. Increase in units of inputs
c. Increase in capital
d. Increase in labor

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19. Higher the output, higher will be the:
a. Revenue
b. Cost
c. Profit
d. Export

20. The cost which is perfectly inelastic with the level of output is:
a. Explicit cost
b. Implicit cost
c. Fixed cost
d. Opportunity cost

21. An increase in the money supply causes:

a. interest rates to fall, investment spending to rise, and aggregate demand to rise
b. interest rates to rise, investment spending to rise, and aggregate demand to rise
c. interest rates to rise, investment spending to fall, and aggregate demand to fall
d. interest rates to fall, investment spending to fall, and aggregate demand to fall

22. A general decline in prices is often caused by a reduction in the supply

of………..
a. money or debit
b. money or credit
c. money
d. None of these

23. The period of the business cycle in which real GDP is increasing is called the:
a. expansion
b. peak
c. recession
d. trough

24. Inflation is:

a. an increase in the overall price level.
b. an increase in the overall level of economic activity.
c. a decrease in the overall level of economic activity.
d. a decrease in the overall price level.

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25. The opportunity cost of holding money is the:
a. Inflation rate minus the nominal interest rate.
b. Nominal interest rate.
c. Real interest rate.
d. unemployment rate

26. To fight a recession, the central bank should:

a. Lower the discount rate and buy securities on the open market
b. Increase the discount rate and buy securities on the open market
c. Lower the discount rate and sell securities on the open market
d. Increase the discount rate and sell securities on the open market

27. A reason to enter international markets may be which of the following?

a. Proximity to raw materials
b. Proximity to consumer
c. Global marketing
d. All of the above

28. The gap between GNP and GDP is significant for the country with:
a. Small foreign investment
b. No foreign investment
c. Huge foreign investment
d. None of these

29. Foreign exchange rate is determined by parity of which two factors?

a. Export prices and inflation
b. Purchasing power and interest rates
c. Budget deficit and trade deficit
d. Import and export

30. If demand for Nepali rupee decreases, the international value of the
rupee………… and Nepali export………….
a. Increases; decreases
b. Decreases; decreases
c. Decreases; increases
d. Increases; increases

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

1. How the knowledge of managerial economics is useful for the betterment of a firm in the
world?

2. State the basic difference between accounting profit and economics profit. Which profit
is more useful for making effective managerial decisions?

3. Explain about price Elasticity of demand and income Elasticity of demand.

4. Suppose the total cost function of the firm is TC = 120 + 50Q – 10Q2 + Q3. Find out:
a) TVC, AVC and MC functions.
b) The level of output at which AVC and MC are minimum.

5. Define inflation. Does the strength of the dollar in the foreign markets affect the
inflation rate? Explain.

6. Explain some of the tools of monetary policy

7. Write short notes on: (Any two)

i. Oligopoly Market
ii. Virtual Money VS Real Money
iii. Functions of profit

SECTION C
Long Answer Questions
Attempt any two (2) questions but question no 3 is compulsory (2*20=40)

1. Nepal carpet has the following demand and cost function:

P= 20- Q
C= Q2 + 8Q-2
Find the price and total profit of this company under the objective of.
a. Profit maximization
b. Sales revenue maximization
c. Sales revenue maximization with a profit constraint of Rs. 8.

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2. Explain the difference between Perfect competition and Monopoly market. How price
and output determined under perfect competition market? Explain.

3. Read the case and answer the question that follows:

Volkswagen seeks pay freeze in Germany.
In 2014 Volkswagen (VW) dismissed a union demand for a 4% annual pay increase and
instead announced plans to reduce paid work breaks and increase flexible working time. It
said it had to reduce its spending on labour by 30% by 2021. For the next two years, in order
to preserve its 176 500 jobs in Germany, it had to avoid pay rises, especially because of the
fierce competition in the market for cars.
The expected profits of VW were cut in 2014 because of high production costs, weak
demand and high oil prices. The company wanted to expand flexible working time
arrangements, which would allow it to save money by allowing workers to ‘bank’ overtime
hours when production is high and then stay at home when production is low but get paid
from the ‘banked’ hours. They also wanted to reduce the paid breaks and introduce a
different pay system. Overtime rates would not be paid until after 40 hours a week instead of
the current 35 hours, and there would be a ‘demographic’ work programme in which younger
workers could work more hours early in their career but then retire earlier.
The company also wanted to introduce a bonus system based on the company’s financial
performance which would replace the annual Christmas bonus payment. The trade union
called the proposals ‘extreme, unrealistic and poorly thought out.’
VW said it was changing its strategy so that it could compete more on price in order to
improve sales volumes. This would make it easier to cover its high fixed costs.
A spokesman said ‘if prices go down, costs have to as well. The proposals would not reduce
current employees’ take-home pay. It’s more about intelligent reorganization of the labour
costs. VW’s costs are up to 70% less at factories in Argentina and the Czech Republic than in
Germany. The costs are too high in our German factories’.

(a) Identify three factors that VW says are responsible for the reduction in expected profits.
(b) (I) Explain the difference between a fixed cost and a variable cost.
(ii) Consider which cost category is suitable for the wages paid by VW to its employees.
(c) VW stated that they wished to ‘compete more on price’. Is that a suitable response to the
Factors identified in (a)?
(d) Discuss whether it is reasonable to conclude that costs are too high in VW’s German
factories on the basis of the comparison given with Argentina and the Czech Republic.

****BEST OF LUCK****