ISB&M

INTERNATIONAL SCHOOL OF BUSINESS & MEDIA, PUNE

Managerial Economics-I
End Term
Marks: 30 Time: 2 hours

Instructions:
1. Answers should be precise and to the point.
2. Draw graphs wherever necessary.
3. Answer any five questions and carry equal marks.
_____________________________________________________________________________________

1. Market price of Arhar per quintal is Rs. 5800 in 2019-20. The government has increased its minimum
support price by Rs. 200 per quintal. Explain the impact of it on market with the help of diagram.

2. If the demand and supply curve for Mobiles are: D = 80 - 4P, S = 10 + 3P

a) Plot a demand - supply schedule and graphs.
b) Identify the market equilibrium quantity and price for Mobiles.

3. The government places a tax on the purchase of stock. (Assuming stock is price elastic)
a) Illustrate the effect of this tax on equilibrium price and quantity in the stock market. Identify the following
areas both before and after the imposition of the tax: total spending by consumers, total revenue for
producers, and government tax revenue.
b) Does the price receive by producers rises or fall? Can you tell whether total receipts for producers rise or
fall? Explain.
c) Does the price paid by consumers rise or fall? Can you tell whether spending by consumers rises or falls?
Explain.

4. What is price and cross elasticity of demand? How these are useful to manager in taking business
decisions? Explain it.
5. Answer the questions on the basis of given story:

Story: Imagine that John and Sam have been caught for minor crime, but police suspect that they have done
bank robbery in past. The police have enough evidences against them for minor crime but they do not have
any evidence against them for bank robbery. The police decide to run the experiment on both criminals. They
are questioned in separate cells and have to decide whether to confess or not for bank robbery.

They are told; 1) If one of them confesses (and agrees to be a witness against the partner for bank robbery),
he will go free in exchange for being a key witness, when other is not confessing. The person who is not
confessing will go in jail for 8 months. 2) If nobody confesses, they will go in jail for 2 months. 3) If both
confess, they will go in jail for 4 months.
 ISB&M
INTERNATIONAL SCHOOL OF BUSINESS & MEDIA, PUNE

a) Plot the payoff matrix for John and Sam on given offers.
b) Whether Sam has a dominant strategy, explain it.
c) Whether John has a dominant strategy, explain it.
d) Explain Nash equilibrium in this situation.

6. The production cost of a Water bottle is given in the below table.

Complete the following table and show the working for the same. Also identify the efficient scale of
production from completed table.
Output TC TFC TVC AFC AVC ATC MC
0 240 0
1 50
2 90
3 120
4 130
5 150
6 180 30
7 460 220
8 510 270
9 330 60
10 640 400

[Where, TC=Total cost, TFC= Total fixed cost, TVC= Total variable cost, AFC= Average fixed cost,
AVC=Average variable cost and MC= Marginal cost]
 ISB&M
INTERNATIONAL SCHOOL OF BUSINESS & MEDIA, PUNE