Final-Term Examination (Spring 2021)

Subject: Managerial Economics Program: MBA 1.5 (2)

Course Instructor: Dr. Abdul Rauf Kashif Days: Weekend
Total Time: 24hours Total Marks: 65 Semester: 2nd Section: A
Date: 10-July-2021 Student Name:
Sign of HOD: Reg. #:

1. Attempt all (05) questions which are compulsory. Total marks are 65.
2. You have to upload answer sheets within 24 hours at LMS.
3. Each student would attempt/answer the paper in his/her own hand writing and
using blue or black ink only. Thus, the answers should be clearly visible and
readable. Otherwise, the answer sheet would not be considered.
4. Write your complete name, registration number and put signature on each page
(where ever the space mentioned on each page for it) and after scan of each hand
written pages, convert into single PDF file/format with page number and upload it
on LMS.
5. Each student would submit the draft of answer sheet in single PDF file within
24 hours.
6. It is mandatory for each student to take print of this given format and use each
page of it to attempt his/her paper on it and submit answer script in single
PDF File Format with page numbers (below each page) on it in appropriate
sequence.
7. Data and supplementary material (if necessary) may be attached at the end in
appendix.
 Please attempt all (05) Questions

Question No.1 (13 marks)

a. Define Demand and supply curves with diagrams. Label all axes and curves
appropriately. pinpoint the equilibrium point, the equilibrium quantity, and the
equilibrium price?
b. Explain what equilibrium in the market is and why there is a tendency toward it. (In other
words, if the price of something is higher or lower than the equilibrium price, what forces
(i.e., human behavior) push the price and quantity to equilibrium?)
c. Illustrate and explain how equilibrium price and quantity change when either the supply
or demand curve shifts: 1) an increase in Demand; 2) an increase in Supply; 3) a decrease
in Demand; 4) a decrease in Supply?

Question No.2 (13 marks)

The accompanying table gives part of the supply schedule for personal computers in the
Pakistan.

Price of Computers Quantity of Computers

RS 110000 12000
RS 90000 8000

Required Answers:
a) Price elasticity of supply when the price increases from Rs 90000 to RS 110000 using
the midpoint formula.
b) Suppose firms produce 1,000 more computers at any given price due to improved
technology. As price increases from Rs 90000 to Rs 1,10000, is the price elasticity of
supply now greater than, less than, or the same as it was in part a?
c) Suppose a longer time period under consideration means that the quantity supplied at
any given price is 20% higher than the figures given in the table. As price increases from
Rs 90000 to Rs 1,10000, is the price elasticity of supply now greater than, less than, or
the same as it was in part a?

Question No.3 (13 marks)

a) According to a Toyota press release on October 23, 2020, sales of the fuel-efficient
four-cylinder Honda Civic rose by 7.1% from 2019 to 2020. Over the same period,
according to data from the Pakistan Energy Information Administration, the average price
of regular gasoline rose from Rs122.27 per gallon to Rs 152.57 per gallon.
Required answers:
 Using the midpoint method, calculate the cross-price elasticity of demand between Honda
Civics and regular gasoline. According to your estimate of the cross-price elasticity, are
the two goods gross complements or gross substitutes? Does your answer make sense?

b) Discuss why most of firms apply average cost pricing rather marginal cost pricing
criterion in practice?

Question No.4 (13 marks)

Identify the factors contributing to both the demand and supply of goods and services,
and determine which one you believe has the most significant impact on the creation of
markets. Explain your rationale.

Question No.5 (13 marks)

Taiwan is a major world supplier of semiconductor chips. A recent earthquake severely

damaged the production facilities of Taiwanese chip-producing companies, sharply
reducing the amount of chips they could produce.
Required Answers:
a. Assume that the total revenue of a typical non-Taiwanese chip manufacturer rises due
to these events. In terms of elasticity, what must be true for this to happen? Illustrate the
change in total revenue with a diagram, indicating the price effect and the quantity effect
of the Taiwan earthquake on this company’s total revenue.
b. Now assume that the total revenue of a typical non-Taiwanese chip manufacturer falls
due to these events. In terms of elasticity, what must be true for this to happen? Illustrate
the change in total revenue with a diagram, indicating the price effect and the quantity
effect of the Taiwan earthquake on this company’s total revenue.