Institute of Rural Management Anand

Course Name: Microeconomics Programme: PGDM(RM42)

Date: 4th October, 2021 Term – I Roll No._______________________

Quiz 2 (Open Book)

Duration of Exam: 45 Mins Weightage: 15 percent Total Marks: 30 Marks

Q1. Dinesh patel, an accountant and Reena Patel, an economist are employees of a reputed market
research firm. They have been asked to separately report the cost as well as overall value of watching
a play for audience members of Kala Mandir, a popular theater. The price of the ticket is Rs. 250.
Some additional information is available as follows:

• Holiday Park is an open maidan located just adjacent to the theater. There a play is performed
daily at the same timing of the play in Kala Mandir, admitting audiences free of cost.
• Reena does a survey of audiences and finds that they value the play in the Holiday Park at Rs.
150 per show. In other words, they would have been willing to pay up to Rs. 150 for the
Central Park play had it been charged.
• The pleasure a member of the audience gets from watching the Kala Mandir play is worth Rs.
500
Dinesh comes back within no time and reports that the cost of the play is Rs. 250 for a member of the
audience. He has nothing to add on value

Reena comes back in a couple of days and reports a different number on costs and gives a value
measure.

Please answer the following questions:

1. Is Dinesh correct in his valuation of costs? Justify your response appropriately (1 Mark)
2. What do you think would be Reena’s estimate of costs? (3 marks)
3. Where according to Reena would an audience member be more inclined to go to watch a
play? (3 marks)
4. Consider the alternative scenario wherein Reena estimated the benefit to a member of the
audience from watching the Kala Mandir’s play to be Rs. 350. Would her report have
changed regarding where the audience member would have preferred to go to watch the play?
(3 marks)

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Q2. State with appropriate reasons whether the following statements are true or false:

i. A producer making subnormal profits in a perfectly competitive market necessarily

shuts down (5 marks)
ii. The long-run average cost can never exceed short-run average cost for any level of
output (figure not necessary) (5 marks)

Q3. Consider the Pathology labs industry in Anand City. Argue in favour or against whether the
perfectly competitive model can be used in the context of pathology labs. (Confine your answer to a
maximum of 350 words). (10 marks)

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