MBA Managerial Economics Exam

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Questions and Answers

Explain how managerial economics integrates economic theory with business practice, and discuss its role in shaping managerial decisions.

Managerial economics applies economic theories and tools to solve business problems and make informed decisions. It helps managers analyze market conditions, optimize resource allocation, and develop effective strategies.

How does the concept of income elasticity of demand influence a business firm's decisions regarding pricing, production, and marketing strategies?

Income elasticity of demand measures how demand changes with consumer income. Businesses use this to predict sales fluctuations during economic cycles, adjust production, and target specific income groups with marketing.

Explain the reasons why the long-run average cost (AC) curve is typically U-shaped.

The U-shape is due to economies and diseconomies of scale. Initially, increasing production leads to lower average costs (economies), but eventually, management complexities cause costs to rise (diseconomies).

Define 'market structure' and explain how different market structures (e.g., perfect competition, monopoly) impact pricing and output decisions.

Market structure refers to the characteristics of a market, including the number of firms, barriers to entry, and product differentiation. These factors influence the level of competition, which in turn affects pricing and output decisions. Signup and view all the answers

Describe the circular flow of economic activity in India, including the roles of households, firms, and the government.

Households supply labor and capital to firms, who produce goods and services. These are purchased by households and the government. The government also collects taxes and provides public services, completing the circular flow. Signup and view all the answers

Distinguish between microeconomics, macroeconomics, and managerial economics, and explain why the study of managerial economics is important for business decision-making.

Microeconomics studies individual economic units, macroeconomics studies the economy as a whole, and managerial economics applies microeconomic principles to business decisions, optimizing resource allocation and strategy. Signup and view all the answers

Explain the concept of 'time perspective' in managerial economics and how it affects investment decisions.

Time perspective recognizes that decisions have consequences over time. It affects investment decisions through discounting future cash flows and comparing them to current costs to assess project viability. Signup and view all the answers

What is 'cardinal utility' and what are its limitations in the context of consumer choice and demand analysis?

Cardinal utility assumes utility can be numerically measured, allowing for precise comparisons. However, it is limited because utility is subjective and difficult to quantify accurately, making ordinal utility a more realistic approach. Signup and view all the answers

Explain the relationship between marginal revenue and price elasticity of demand. How can a firm use this relationship to optimize its pricing strategy?

Marginal revenue (MR) is related to price elasticity of demand. When demand is elastic, reducing price increases total revenue (MR > 0). When demand is inelastic, increasing price increases total revenue (MR < 0). A firm maximizes profit when MR = MC (marginal cost). Signup and view all the answers

What is 'imperfect market structure'? How do firms behave differently in an imperfectly competitive market compared to a perfectly competitive market?

Imperfect market structure exists when the conditions of perfect competition are not met. Firms in these markets have some degree of market power enabling them to influence prices unlike firms in perfectly competitive markets, which are price takers. Signup and view all the answers

Flashcards

Managerial Economics

The study of how to efficiently allocate scarce resources to achieve managerial goals.

Cardinal Utility

The satisfaction a consumer derives from consuming goods or services. It's measurable in 'utils'.

Law of Demand

As the price of a good/service increases, quantity demanded decreases; as price decreases, quantity demanded increases.