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Exam Paper for Managerial Economics in BBA (With
Answers)
PAPER # 1
**Managerial Economics Exam Paper**
**Duration: 2 Hours**
**Total Marks: 100**
**Instructions:**
1
...

2
...
Each
MCQ is worth 2 marks
...
Section B contains 5 short answer questions
...
Each question in Section B is worth 16 marks
...
Write your answers clearly and legibly
...
Calculators are allowed for calculations
...
Which of the following is not a key assumption of perfect
competition?
a
...
Many buyers and sellers

2

c
...
High barriers to entry
**Answer: d
...
Elasticity measures the:
a
...
Percentage change in price for a one percent change in quantity
demanded
c
...
Total change in price for any change in quantity demanded
**Answer: a
...
When marginal cost is equal to marginal revenue, a profitmaximizing firm should produce:
a
...
Less output
c
...
Zero output
**Answer: c
...
In the short run, a firm should shut down if:
a
...
Total revenue is greater than total cost

3

c
...
Fixed cost is greater than total revenue
**Answer: a
...
Which of the following is a determinant of demand elasticity?
a
...
The number of firms in the industry
c
...
The minimum wage rate
**Answer: a
...
What is the main objective of cost-benefit analysis?
a
...
Minimizing costs
c
...
Achieving economic efficiency
**Answer: c
...
Which market structure is characterized by a single seller and no
close substitutes?
a
...
Monopolistic competition
c
...
Oligopoly

4

**Answer: c
...
The production function represents the relationship between:
a
...
Marginal cost and marginal product
c
...
Inputs and outputs
**Answer: d
...
The price elasticity of demand for a perfectly inelastic good is:
a
...
Less than one
c
...
Infinite
**Answer: a
...
What is the formula for calculating the profit of a firm?
a
...
Profit = Marginal Cost - Marginal Revenue
c
...
Profit = Fixed Cost + Variable Cost
**Answer: a
...
Each question is worth 16
marks
...
Explain the concept of opportunity cost and how it relates to
decision-making in economics
...
It's a crucial concept in
economics because it highlights the trade-offs individuals, firms, and
societies face when allocating limited resources to various
alternatives
...

12
...

**Answer:**
- Explicit costs are direct, out-of-pocket expenses incurred by a firm,
such as wages, rent, and material costs
...
For example, paying employees' salaries is an
explicit cost
...
These
costs do not involve cash transactions
...

13
...
How is it
calculated, and what does it indicate about a good's demand?
**Answer:**
Price elasticity of demand measures how sensitive the quantity
demanded of a good is to changes in its price
...
A small price increase leads to a
proportionally larger decrease in quantity demanded
...
A price increase results in a
proportionally smaller decrease in quantity demanded
...

14
...
Highlight their key
characteristics and give an example of a product or industry for each
...
Key characteristics include price
takers, no barriers to entry, and homogeneous products
...

- Monopolistic Competition: Monopolistic competition features many
firms with differentiated products
...
There are low barriers to entry
...

- Monopoly: In a monopoly, there is a single seller dominating the
market with no close substitutes
...
Example:
Local natural gas distribution
...
Firms can collude or compete
...
Example: The automobile industry
...
Discuss the concept of marginal cost and its importance in profit
maximization for a firm
...

**Answer:**
Marginal cost (MC) represents the additional cost incurred by a firm
when producing one more unit of output
...
If MC is less than MR, the firm should produce more;
if MC is greater than MR, it should produce less
...
If the cost
of producing one more smartphone (MC) is $200, and the revenue
generated from selling one more smartphone (MR) is $250, the firm
should produce more smartphones to maximize profits
...

PAPER # 2
Section A: Multiple Choice Questions (10 marks)
1
...
The law of diminishing marginal utility states that as we consume more and more
units of a commodity, the utility derived from each successive unit goes on: (a)
Increasing (b) Diminishing (c) Remains the same (d) Cannot be determined
3
...
The short-run production function of a firm is: (a) Increasing at an increasing rate
(b) Increasing at a decreasing rate (c) Eventually constant (d) All of the above
5
...
Define managerial economics and explain its scope
...
Discuss the different types of costs that a business firm incurs
...
Explain the law of demand and its determinants
...
Describe the three stages of the law of variable proportions
...
What is perfect competition? Discuss its features
...
Explain the different objectives of a business firm and discuss their relative
importance
...
Discuss the different factors that affect the elasticity of demand
...
Explain the different types of market structures and discuss their impact on
pricing decisions
...
What is cost-benefit analysis? Discuss its steps and justification for its use
...
Write a short note on the following: (a) Break-even analysis (b) Capital budgeting
techniques (c) Risk management
Answers
Section A:
1
...
(b)
3
...
(c)
5
...
Managerial economics is the application of economic theory to business
decision-making
...
The scope of
managerial economics is wide and covers a variety of topics, including demand
analysis, cost analysis, production theory, pricing theory, market structure, and
investment analysis
...
The different types of costs that a business firm incurs are:
o

Explicit costs: These are costs that involve a direct cash outlay, such as
wages, rent, and raw materials
...


10

o

Fixed costs: These are costs that do not change with the level of output,
such as rent and insurance
...


3
...

The determinants of demand are:
o Price of the good
o

Income of the consumers

o

Prices of related goods

o

Tastes and preferences of the consumers

4
...
Perfect competition is a market structure in which there are many buyers and
sellers, all selling the same homogeneous product
...
The different objectives of a business firm are:

11

o

Profit maximization

o

Wealth maximization

o

Social welfare

o

Customer satisfaction

o

Employee satisfaction

o

Environmental protection

The relative importance of these objectives varies from firm to firm
...

2
...
Define managerial economics
...
What are the different types of costs incurred by a business firm?
3
...

4
...
What is the meaning of price elasticity of demand?
Part II: Long Answer Questions
6
...

7
...

8
...

9
...

10
...

Answers:
Part I: Short Answer Questions
1
...

2
...


o

Variable costs: Costs that change with the level of production
...


3
...

4
...
Monopoly is a market structure in which
there is only one seller of a good or service
...
Price elasticity of demand measures the responsiveness of the quantity
demanded of a good or service to changes in its price
...

Part II: Long Answer Questions
6
...


o

Sales maximization: Some firms may aim to maximize their sales volume,
either to increase their market share or to achieve other goals, such as
brand awareness
...


o

Growth maximization: Some firms may aim to maximize their growth,
either in terms of revenue, profit, or market share
...


7
...
The different
types of production functions include:

13

o

Linear production function: This type of production function shows that the
output is directly proportional to the inputs
...


o

Constant elasticity of substitution (CES) production function: This type of
production function shows that the elasticity of substitution between the
inputs is constant
...
The different market structures are:
o

Perfect competition: In perfect competition, there are many buyers and
sellers, all selling identical products
...


o

Monopoly: In a monopoly, there is only one seller of a good or service
...


o

Monopolistic competition: In monopolistic competition, there are many
sellers, each selling a differentiated product
...


o

Oligopoly: In an oligopoly, there are a few large sellers of a good or
service
...


9
...


o

Target-profit pricing: This method involves setting the price of a good or
service to achieve a target profit level
...


o

Value-based pricing: This method involves setting the price of a good or
service based on the value that it provides to customers
...
Cost-benefit analysis is a technique used to evaluate the costs and benefits of a
proposed project or decision
...
Which of the following is NOT a fundamental concept in managerial
economics?
a) Scarcity
b) Opportunity cost
c) Marginal analysis
d) Sunk cost
**Answer: d) Sunk cost**
2
...
When a firm maximizes its profits, it produces at the point where:
a) Marginal cost equals average cost
b) Marginal cost equals marginal revenue
c) Average revenue equals average cost

15

d) Total cost equals total revenue
**Answer: b) Marginal cost equals marginal revenue**
4
...
Which of the following is a characteristic of a perfectly competitive
market?
a) Many firms selling differentiated products
b) Barriers to entry for new firms
c) Firms have some control over the market price
d) Identical products sold by many small firms
**Answer: d) Identical products sold by many small firms**
--**Section B: Short Answer Questions**
6
...
Provide an
example and calculate the elasticity if necessary
...
It is calculated
as the percentage change in quantity demanded divided by the
percentage change in price
...

7
...
Provide an
illustration
...
It represents the cost of choosing one option over
another
...
If you choose to go to
the movie, the opportunity cost is the potential benefit you would have
gained from studying
...


17

8
...
Provide examples of each
...
These costs involve direct
monetary payments
...

Implicit costs, on the other hand, are the opportunity costs
associated with using the firm's resources for a particular purpose
instead of the next best alternative
...
Examples
of implicit costs include the owner's salary (if they work in the business
without taking a salary), the interest on owner's capital, and the rental
income that could have been earned if the firm's property were leased
to others
...
Describe the characteristics of a monopoly market structure and
provide an example of a real-world monopoly
...
Key characteristics of a monopoly include:
- Single seller: There is only one firm that supplies the entire market
...


18

- High barriers to entry: Barriers such as patents, economies of
scale, and government regulations prevent new firms from entering
the market
...

Example: A real-world example of a monopoly is the De Beers
Group in the diamond industry
...

10
...
(10 marks)
**Answer:**
Economies of scale refer to the cost advantages that a firm can
achieve as it increases its level of production or scale of operation
...
Two examples of how firms can achieve
economies of scale are:
a) **Technical economies:** These result from using specialized
and more efficient production techniques as the scale of production
increases
...

b) **Managerial economies:** As a firm grows, it can hire
specialized managers and experts who can optimize production
processes and improve resource allocation
...
For instance, a large retail chain can employ experienced
supply chain managers to reduce transportation costs and inventory
holding costs
...

Section A: Multiple Choice Questions (10 marks)
1
...
The problem of the firm
...
The problem of the individuals
...
The problem of the economy
...
All of the above
...
The primary objective of the business economics is:
o

A
...


o

B
...


o

C
...


o

D
...


3
...
Inverse
...
Direct
...
Not defined
...
None of the above
...
Law of Diminishing Marginal Utility states that as we consume more and more
units of a commodity, the utility derived from each successive units goes on:
o A
...

o B
...

o C
...

o

20

D
...


5
...
Leftward shift
...
Rightward shift
...
Expansion in demand curve
...
Contraction in demand curve
...
What is managerial economics? Explain its nature and scope
...
What are the different types of costs?
3
...

4
...
What is cost-benefit analysis? Explain the steps and justification for the use of
cost-benefit analysis
...
Discuss the various types of market structures and their characteristics
...
Explain the different theories of demand
...
What is production function? Explain the different types of production functions
...
What is pricing? Explain the different pricing strategies that a firm can adopt
...
What is capital budgeting? Explain the different methods of capital budgeting
...
A
2
...
A
4
...
B
Section B: Short Answer Questions
1
...
It is the study of how firms can allocate their resources
efficiently and achieve their objectives
...
The scope of managerial economics is wide, and it covers
a variety of topics, including demand analysis, cost analysis, production theory,
pricing theory, and capital budgeting
...
The different types of costs are:
o

Fixed costs: Costs that do not change with the level of output
...


o

Total costs: The sum of fixed and variable costs
...


o

Marginal costs: The change in total costs resulting from a one-unit change
in output
...
The law of variable proportions states that as the quantity of one input is
increased while the quantities of other inputs are held constant, the marginal
product of the variable input will eventually decrease
...
Perfect competition is a market structure in which there are a large number of
buyers and sellers, all selling a homogeneous product
...
In the
short-run, a firm in perfect competition will produce at the level of output where
price equals marginal cost
...

5
...
It is a systematic approach to decision-making that helps
managers to choose the best option from a set of alternatives
...
Identify the costs and benefits of the project or investment
...
Quantify the costs and benefits, to the extent possible
...
Discount future costs and benefits to their present values
...
Compare the present values of the costs and benefits
...
Choose the option with the highest net present value (NPV)
...

1
...
Many buyers and many sellers
b
...
High barriers to entry
d
...
Many buyers and many sellers
2
...
Marginal cost equals marginal revenue
b
...
Marginal cost equals average revenue
d
...
Marginal cost equals marginal revenue
3
...
The responsiveness of quantity demanded to changes in price
b
...
The degree of competition in the market
d
...
The responsiveness of quantity demanded to
changes in price
4
...
Total revenue and total cost
b
...
Inputs and outputs in production
d
...
Inputs and outputs in production
5
...
The explicit cost of the decision
b
...
The value of the next best alternative forgone
d
...
The value of the next best alternative forgone
--**Section B - Short Answer Questions (80 Marks)**

24

Instructions: Answer any four out of five questions in this section
...
Explain the concept of price elasticity of demand
...

**Answer:**
Price elasticity of demand measures how responsive the quantity
demanded of a good is to changes in its price
...

7
...
Provide an
example for each
...
**Perfect Competition:** In perfect competition, there are many
buyers and many sellers, and products are identical
...

b
...
An example is a local
utility company with no competitors
...
**Oligopoly:** Oligopoly consists of a few large firms dominating
the market
...
An example is the automotive
industry with a few major players
...
**Monopolistic Competition:** In monopolistic competition, there
are many sellers offering differentiated products
...
An example is the fast-food industry, where various
chains offer different menus and branding
...
Explain the concept of the production function in managerial
economics
...


26

**Answer:**
A production function in managerial economics describes the
relationship between inputs (typically labor and capital) and the
maximum amount of output a firm can produce, given the existing
technology
...
The general form of a production function is:
Q = f(L, K)
Where:
- Q is the quantity of output
- L is the quantity of labor input
- K is the quantity of capital input
- f() represents the production function
...

9
...


27

**Answer:**
A profit-maximizing monopolist determines the price and quantity of
a product by equating marginal cost (MC) and marginal revenue (MR)
...
It represents the cost of
increasing production
...
It represents the change in
total revenue due to an increase in output
...

- If MR > MC: The monopolist should produce more units because
the revenue from selling an additional unit (MR) exceeds the cost
(MC)
...

- If MC > MR: The monopolist should produce fewer units because
the cost of producing an additional unit (MC) exceeds the revenue
(MR), reducing profit
...
The price will be
higher than the MC, resulting in a monopolistic price and quantity
...
Explain the concept of opportunity cost
...


28

**Answer:**
Opportunity cost refers to the value
of the next best alternative that must be forgone when a decision is
made to allocate resources (time, money, labor, etc
...
In other words, it represents the cost of not choosing the
next best alternative
...

Job B offers a salary of $45,000 per year but allows you to work
from home, saving you commuting time and expenses
...
If you
estimate that the time saved and convenience are worth $6,000 per
year, then the opportunity cost of choosing Job A is $6,000
...

Choosing the option with the lowest opportunity cost generally leads to
better decision-making
...
Remember that actual exams may vary in content and
format, so it's essential to study your course materials thoroughly to
prepare effectively
...
In a real exam,
questions may vary in complexity, and students should study their
course materials and lecture notes to prepare thoroughly
...
Managerial Economics
2
...
Managerial Economics Exam
4
...
Exam Paper with Answers
6
...
Economics Exam
8
...
BBA Practice Exam
10
...
Managerial Economics Solutions
12
...
BBA Exam Preparation
14
...
BBA Curriculum

30

16
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BBA Sample Questions
18
...
Managerial Economics MCQs (Multiple Choice Questions)
20
...
BBA Course Material
22
...
Economics for Managers
24
...
BBA Mock Test
26
...
BBA Exam Resources
28
...
Business Degree Exam
30

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