SCHOOL OF EXCELLENCE IN LAW

THE TAMIL NADU Dr. AMBEDKAR LAW UNIVERSITY, CHENNAI

INTERNAL ASSESSMENT
VIVA VOCE EXAMINATION, MARCH – 2020
BBA. LLB., (Hons)

MANAGERIAL ECONOMICS

1. Define word “Economics” – Economics has been derived from two Greek words “
Oikos” – “Mean a House” and “Nemein” – Mean to Manage”
Economics explains how a household and a society manage with limited funds in an
economical manner.
The order in which the definition of economics developed under four headings
a) Wealth Definition – Adam Smith
b) Welfare Definition – Alfred Marshall
c) Scarcity Definition – Lionel Robbins
d) Growth and Development Definition – Modern Economists Paul A. Samuelson

2. Define Managerial Economics

“The integration of economic theory with business practice for the purpose of facilitating
decision-making and forward planning by management”.

3. What do you mean by Decision-making?

Means the process of choosing one action from two or more alternatives available.

4. What is Forward Planning?

Means establishing plans for the future. These plans focuses on the future programme of
action by the business unit.

5. What do you mean by “Scarcity”?

refers to the resources that are scarce and limited. Scarcity is a situation in which the
resources available for producing output have been insufficient to satisfy wants.

6. What are the Economic Concepts of Business Application?

a) Production Possibility Frontiers
b) Accounting Profit and Economic Profit
c) The Opportunity Cost Principle
d) Incremental Principle
e) Marginal Opportunity Cost
f) Principle of Time Perspective
 g) Discounting Principles
h) Equi-Marginal Principles
i) Concept of Efficiency

7. What is the basic aspects/scope of Managerial Economics?

a) Demand Analysis b) Cost Analysis c) Production and Supply Analysis d) Profit
Management and e) Capital Management.

8. How does Managerial Economics differ from Economics?

a) Managerial Economics involves application of economic principles to the problems of
the firm. Whereas Economics deals with the body of the principles itself.
b) Whereas Managerial Economics is micro-economic in character. Economics is both
macro-economic and micro-economic.
c) Managerial Economics though micro in character deals only with the firm and has
nothing to do with an individual’s economic problems. But Mirco-economics as a
branch of economics deals with both.

9. What are the roles of Managerial Economist?

a) Managerial Economist can contribute to decision-making in business.
b) Managerial Economist one must an analysis and forecast of external factors
constituting general business conditions. E.g prices, national income and output,
volume of trade etc.
c) Sales forecasting
d) Industrial market research
e) Economic analysis of competing companies.
f) Pricing problems of industry.
g) Capital projects.
h) Production programmes
i) Security/ Investment analysis and forecasts
j) Advice on trade and public relations
k) Advice on foreign exchange
l) Economics analysis of agriculture
m) Environmental forecasting.
n) Macro forecasting for demand and supply.

10. What do you mean by Accounting Profit?

Accounting profit is one which is exhibited on the face of the profit and loss account of a
firm. (Revenue –explicit cost = Accounting Profit)

11. What is Economic Profit?

Economic profit is one which considers both explicit and implicit cost before arriving at
the profit.

12. What is Risk?

 Refers to a situation in “which future events are not known with certainty”. A risk is an
uncertainty of loss. Risk may be defined as an uncertainty of financial loss on the
occurrence of an unfortunate event.

13. What is Uncertainty?

Refers to a situation in which is not certain i.e unpredictable. Uncertainty is a situation
regarding a variable in which neither its probability distribution nor its mode of
occurrence is known.

14. Objectives of Business Firm – i) Profit maximization ii) Sales maximization iii) Welfare
goals.

15. What is Demand in Economics?

i) Demand in economics necessitates three things, such as: a) Desire for a commodity
b) Willingness to buy and c) the purchasing power to pay.
ii) Demand in economics means “desire to buy backed by adequate purchasing
power”.
16. Types of Demand –
a) Price demand – “Demand related to the price of that commodity”
b) Income demand - “Demand related to the income of the consumers”
c) Cross demand – “Demand of a commodity related to the price of other
commodities”

17. The Word “Ceteris Paribus” – means “other things remaining the same”.

18. Define Law of Demand.

The law of demand states that “higher the price, lower the demand and vice versa,
other things remaining the same”.

19. Determinates of Demand/Factors affecting demand

Price of commodity, b) Price of related goods c) Income of the consumer
d) Distribution of wealth e) Tastes and preferences f) Government policy
g) State of Business h) Population growth i) Existence of substitutes of goods
j) Expectations of consumers about the future.

20. Exceptions to the Law of Demand

War or Emergency b) Giffen Goods c) Goods of Status/ Conspicous Consumption
d)Expectation of Price Rise in Future f) Demonstration Effect e) Ignorance of the
People g) Necessities of Life.

21. What is aggregate demand?

 The total demand for goods and services in an economy is known as aggregate demand.

22. What is Demand Schedule?

It is a chart or a table that serves the relationship between price and demand of the
commodity or a service at a time.

23. What do you mean by “Elasticity of Demand”?

refers to “the rate of change in”, the extent of response” and “the quantum” of change in
demand to the change in price.

24. Types of Elasticity of Demand

a) Price Elasticity of Demand
i)Perfectly Elastic Demand, ii)Perfectly inelastic demand, iii)Unitary elastic demand
iv)Relatively elastic demand, v) Relatively inelastic demand.
b) Income Elasticity of Demand
c) Cross Elasticity of Demand

25. What is In-elastic demand?

If a big change in price is followed by a small change in demanded then the demand in
“inelastic”.

26. What is perfectly elastic demand?

When any quantity can be sold at a given price, and when there is no need to reduce
price, the demand is said to be perfectly elastic.

27. What is perfectly in-elastic demand?

When there is no change in the quantity demanded even though there is a big change in
price.

28. What is relatively elastic demand?

Demand changes more than proportionately to a change in price. i.e. a small change in
price loads to a very big change in the quantity demanded.

29. Measurement / Methods of Elasticity of Demand

a) Total Expenditure Method b) Percentage or Proportionate Method c) Point Method d)
Arc elasticity of demand and e) Revenue Method.

30. What are Giffen Goods?

Giffen goods means an “Inferior Good”, a good whose demand tends to fall as its price
falls, thus contradicting the law of demand. Eg: Jowar, Bajra. Those goods are termed as
Giffen goods.
a) Gossen’s First Law is the “Law of Diminishing Marginal Utility”
b) Gossen’s Second Law is the “Law of Equi-marginal Utility”

31. What is a Demand Forecast?

 A demand forecast is the prediction or estimation of a future situation under given
constraints. A forecast may be “ Passive” or “Active”.

32. What do you mean by Passive forecasting?

Means that “assumes a static business environment in future”, “ it refers that the current
external and internal dimensions of the demand for his products will continue in the
future without a change”.

33.  What do you mean by Active forecasting?

Means that “assumes a change in the future business environment through policies of
the firm, its competitions and governments”. It is also called dynamic forecasting.

34. Methods of Demand of Forecasting –

a) Survey Method (or) Qualitative Techniques – i)Consumer’s Survey ii) Collective
Survey
b) Statistical Method (or) Quantitative Techniques – i) Trend Projection Method ii)
Regression and Correlation Method iii) Least Square Method iv) Leading Indicator
Method vi) Simultaneous Equation Method.

35. What is meant by Production?

It is the process of transforming inputs into outputs. In economics, the term
“Production” is used for creation of those goods and services which have an exchange
value.
36. Production does not have exchange value such as
a) Domestic work – which refers to any work done by a family member out of affection.
b) Voluntary Services – which refers to any service performed out of patriotic feelings to
improve society’s welfare.
c) Goods for self-consumption – which refers to those goods which are not sold in
market to earn income.
37. What are the factors of Production?
There are four factor of production. Land, Labour Capital and Organisation.
38. Law of Production
a) Law of Variable Proportion
b) Law of Returns to Scale
c) Least Cost Combination and Producer’s Equilibrium

39. What are the three stage of Law of Variable Proportion

Stage-1: Stage of Increasing Returns
Stage-2: Stage of Decreasing Returns
Stage-3: Stage of Negative Returns

40. What are the three stage of Law of Returns to Scale

Stage-1: Increasing Returns to Scale
Stage-2: Constant Returns to Scale
Stage-3: Decreasing Returns to Scale
41. What is Economies of Scale?
“Economies” refers to lower costs, hence economies of scale would mean lowering of
costs of production by way of producing in bulk.

42. Types of Economies of Scale – a) Internal Economies and b) External Economics.

43. What do you mean by production possibility?

Refers to the possible combination of maximum amount of two goods that can be
produced with given resources. It is also known that an increase in the production of one
commodity reduces the production of the other commodity.

44. What do mean by Iso-quant?

“Iso” means equal. “Quant” means “quantity”. The equal product curve is called Iso-
quant or Iso-Product or Equal-product.
45. What are the types of Iso-quant?
i) Linear Iso-quant
ii) Input-Output Iso-quant and
iii) Kinked Iso-quant.

46. The term MRTS – Marginal Rate of Technical Substitution.

MRTS LC = C/L

47. What do mean by Iso-Cost line?

“Iso” means equal. “Cost” means “Total Expenditure”. The Iso-cost line is similar to the
price or budget line of the indifference curve analysis. Which shows the various
combinations of factors that will result in the same level of total cost.

48. The Cobb-Douglas production function is a “Homogeneous Production Function”. It

indicates constant returns to scale.

49. What is Break even chart?

The Break-even analysis chart is a graphical representation of costs at various levels of
activity.

50. What is Break Even Point?

Break even analysis helps to identify the level of output and sales volume at which the
firm ‘breaks even’. It means the revenues are sufficient to cover all costs of production.
Various managerial decisions of firms are taken by the managers based on the break-
even point.
51. What is shut down point?
 If the market price for the product is below minimum average variable cost, the firm will
cease to produce, if this appears to be not just a temporary phenomenon. When the price
is less than average variable cost it will neither cover fixed cost nor a part of the variable
costs. Then the firm can minimize losses up to total fixed costs only by not producing. It
is therefore regarded as the shut down point.

52. What is cost of production?

The term “cost of production” means the expenses incurred in the
production of a commodity. This refers to the total amount of money spent
on the production of the commodity.
Costs are mainly a) Total cost b) Average cost and c) Marginal cost.
53. Cost concepts
a) Opportunity Cost b) Outlay cost c) Explicit cost d) Implicit cost e) Fixed
cost f) Variable cost g) Direct cost h) Indirect cost i) Accounting cost j)
Economic cost k) Past cost l) Future cost m) Out-of-Pocket cost
n)Incremental cost o) Sunk cost p) Historical cost q) Social cost r) Private
cost s) Short-run cost and t) Long-run cost.
54. Theories of Costs
a) Traditional Theory and b) Modern Theory.

55. What is an Opportunity Cost?

Opportunity cost is cost of an alternative that must be forgone in order to pursue a
certain action.
56. What is Sunk Cost?
A cost incurred in the past that cannot be changed by any future action.
57. What are Variable Costs?
A variable cost is a cost that varies in total in proportion to changes in the level of
activity.
58. What is Fixed Cost?
A fixed cost is a cost which remains constant in total with changes in the level of activity.

59. What is Out of pocket costs?

“Out-of-pocket costs are those that involve immediate payments to outsiders as opposed
to book costs that do not require current cash expenditure” Wages and salaries paid to
the employees are out-of-pocket costs while salary of the owner manager, if not paid, is a
book cost.

60. What is Direct Costs?

There are some costs which can be directly attributed to the production of a unit for a
given product. These costs are called direct costs.
61. What is Indirect Costs?
Costs which cannot be separated and clearly attributed to individual units of production
are classified as indirect costs.

62. What is full cost pricing method?

Full cost plus pricing is a price-setting method under which you add together the direct
material cost, direct labor cost, selling and administrative cost, and overhead costs for a
product and add to it a markup percentage in order to derive the price of the product.

63. What is meant by Historical cost?

Historical cost refers to the cost an asset acquired in the past, whereas, replacement cost
refers to the outlay made for replacing an old asset.

64. What are the Marginalist Principles?

1) MC=MR,
2) 2) MC curves cuts below MR curve.

65. What is market? “A complex set of activities by which potential buyers and potential sellers are
brought in close contact for the purchase and sale of commodity”.

66. Classification of Markets are

1. On Geographical basis on demand and supply
2. On the basis of time and
3. On the basis of situations.

67. MC=MR condition where the firm gets equilibrium.

68. What is a Perfectly Competitive Market?

Perfect competition – “an industry composed of a large number of firms selling a homogeneous
product and free entry and exit of the firm.”

69. Who was the concept of Imperfect competition introduced? Mrs. Joan Robinson

70. Who was put forth the concept of “Monopolistic Completion”? Prof. E.H. Chamberlin.

71. What is Oligopoly?

Refer to a few firms producing either an identical product or differentiated product.

72. What are the types of Oligopoly? 1. Pure oligopoly and 2. Differentiated oligopoly

73. What is Kinked Demand Curve?

 Kinked Demand Curve means a demand curve with a “kink or bend” at the prevailing market
price, which is used to rationalize the price rigidity often observed in oligopolistic markets.

74. Collusion – refers to “A formal or informal agreement among oligopoly on what prices to charge
and how to divide the market.

75. What is Bilateral Monopoly?

It refers to a market situation where there is only one seller and only one buyer. E.g Railways

76. What is meant by Pricing?

Pricing is the process of determining what a company will receive in exchange for its
product or service.

77. What is meant by Skimming Price?

Companies tend to charge higher price in initial stages. Initial high helps to “Skim the
Cream” of the market as the demand for new product is likely to be less price elastic in
the early stages.

78. What is meant by Penetration Price?

In penetration pricing lowest price for the new product is charged. This helps in prompt
sales and keeping the competitors away from the market.

79. What is Monopoly Power?

Monopoly power is the ability of a firm or group of firms to influence the market price of
the commodity or service.

80. What is Duopoly?

Markets in which two firms are compete with each other.

81. What is Monopsony?

Monopsony is a condition where there are many sellers but only one buyer. It is the
opposite of monopoly but it is a rare market situation.

82. What is Bilateral Monopoly?

Refers to a market situation where there is only one seller and only one buyer. E.g.
railways or posts are monopolies of government.

83. What is Perfect Market?

Perfect competition is a market structure characterized by a complete absence of rivalry
among the individual firms. A perfectly competitive firm is one whose output is so small
in relation to market volume that its output decisions have no perceptible impact on
price.

84. What is Price Discrimination?

 Price discrimination means that the producer charges different prices for different
consumers for the same goods and service. Price discrimination occurs when prices
differ even though costs are same.

85. Types of discriminating Monopoly

a) Personal price discrimination
b) Place of geographical price discrimination
c) Trade or Use discrimination.

86. What is Marginal Revenue Product?

It is the additional revenue (Marginal Revenue) from increased use of an input.

87. What do you mean by profit?

Profit = TR-TC (Total explicit + Implicit costs)

88. Define pure monopoly.

Pure monopoly means there is no substitute commodities.

89. Features and conditions of Perfect competition

a) Large number of buyers and sellers
b) Price taker market
c) Homogeneous product
d) Free entry and exit conditions
e) Perfect knowledge about the market condition
f) Perfect mobility of factors of production
g) Absence of transport cost
h) Absence of government intervention
i) No selling cost
j) Profit maximization.
90. Features and conditions of Monopoly
a) One seller and large number of buyers
b) No close substitutes
c) Difficulty of entry of new firms
d) Price Maker Market
e) Monopoly is also an industry
f) Perfect knowledge about the market conditions

91. Features and conditions of Monopolistic competition

a) Large number of buyers and sellers of the commodity
b) Free entry or exist of firms
c) Product differentiation
d) Imperfect knowledge about market conditions
e) High selling cost
f) High transportation cost
92. Features and conditions of Oligopoly
a) Few sellers
b) Homogeneous or differentiated products
c) Barriers to entry
d) Mutual interdependence
e) Selling cost
f) Lack of uniformity
g) Existence of price rigidity
h) No unique pattern of pricing behavior

93. Types of Oligopoly

a) Pure Oligopoly – it occurs if the product is homogeneous. Eg. Industries producing
cement, steel, chemicals, cooking gas and basic metals.
b) Differentiated Oligopoly – it occurs if the products are differentiated. E.g. industries
of automobiles, refrigerators, computers, microwave etc.

94. Features and conditions of Duopoly

a) Two firms prevailing
b) Both operate at zero marginal cost
c) Both face a demand curve with constant negative slope
d) Each seller acts on the assumption that his competitor will not react to his decision to
change his output and price