NAME: __________________________ PGID: __________________________

Managerial Economics (MGEC)

Indian School of Business
Term 1, 2019-20
Version A Time: 30 minutes
This quiz has 15 questions Each question is worth 1 point

Please use the blank sheet at the end for all rough work
The question paper must be submitted along with the OMR sheet at the end

This quiz is ISB honor code 4N

1. Opportunity costs arise because

a. resources are unlimited
b. resources must be shifted away from one use in order to utilize them for another
use
c. desires are limited
d. each successive unit of a good costs more than the last one

2. Suppose you find Rs. 500 on your way to the academic centre, and you use it towards
buying a Rs. 800 ticket to see the Sunrisers versus Indians IPL match on Monday. What
is your opportunity cost of going to the match? Assume that a ticket, once bought, has no
value other than that of getting its original buyer in to the venue.
a. Rs. 800 plus the value of your time
b. The value of your time
c. Rs. 500 plus the value of your time
d. Rs. 300 plus the value of your time

3. When the market for a good is in equilibrium,

a. Consumer surplus will equal producer surplus.
b. The total value created for consumers will equal the total cost of production for
business firms.
c. All units valued more highly than the marginal cost of production will be
supplied.
d. All units that have value will be produced, regardless of their cost of production.

4. A decrease in the price of strollers leads to an increase in demand for rattles. This means
that strollers and rattles are
a. Substitutes
b. Inferior goods
c. Normal goods
d. Complements

5. If the demand for orange juice increases, this must mean that
a. The price of orange juice has decreased
NAME: __________________________ PGID: __________________________

b. The price of apple juice has increased

c. Consumers’ income has increased
d. People are willing to buy more orange juice at each price

6. Assume that the demand curve for coffee is downward sloping and the supply curve is
perfectly elastic, i.e., any quantity can be supplied at the prevailing market price. What
will happen to the consumer surplus if demand for coffee increases?
a. It will remain unchanged
b. It will increase if demand is relatively elastic and decrease if demand is relatively
inelastic
c. It will decrease if demand is relatively elastic and increase if demand is relatively
inelastic
d. It will increase

7. Suppose the demand for handwoven silk shawls is given by Q = 48 – 2P, where P is the
price in thousands of rupees. The supply of handwoven silk shawls is given by Q = 4P.
At what price will 16 shawls be demanded?
a. 32,000
b. 16,000
c. 4,000
d. 64,000

8. For the same demand and supply curves as above, how many handwoven silk shawls
would be sold at equilibrium?
a. 8
b. 16
c. 32
d. 36

9. If all the firms in a perfectly competitive market are able to recover more than their
accounting costs and opportunity costs, what will happen to the number of firms in this
market in the long run?
a. Increase
b. Decrease
c. Cannot be determined based on this information
d. It depends on the product being sold in the market

10. A vendor selling Kulcha at breakfast in Sector 17 faces two distinct demand curves from
two types of consumers –the locals and the migrants. Migrants are very price sensitive,
and would just as happily consume poori for breakfast. Locals, on the other hand, prefer
to eat kulcha for breakfast every day, and therefore, their demand is only half as elastic as
that of the migrants. If the vendor’s marginal cost of each kulcha served is the same and
he price discriminates, what will be the relationship between the mark-up he charges to
these two groups?
a. The mark-up charged to migrants will be half of that charged to the locals
b. The mark-up charged to migrants will be twice of that charged to the locals
NAME: __________________________ PGID: __________________________

c. The mark-up charged to migrants will be equal to that charged to the locals
d. The mark-up charged to migrants will be independent of the mark-up charged to
the locals

11. Suppose a new technology called “fracking” has now enabled large oil companies to
extract petroleum from rocks at a low cost. At the same time, concerns about climate
change have caused consumers to cut down their usage of petroleum-based fuels such as
petrol. What will happen to the equilibrium price of petrol?
a. Increase
b. Decrease
c. Unchanged
d. Ambiguous

12. Based on the situation described in Question (11) above, what will happen to the
equilibrium quantity in the petrol market?
a. Increase
b. Decrease
c. Unchanged
d. Ambiguous

13. Suppose a restaurant in a competitive market that is profitable (makes normal profit)
during the summer months is unable to cover its total cost during the winter months. If it
wants to maximize profits, the restaurant should
a. Shut down during the winter, even if it is able to cover its variable costs during
that period.
b. Continue operating during the winter months if it is able to cover its variable
costs.
c. Go out of business immediately; losses should never be tolerated.
d. Lower its prices during the summer months.

14. What will happen to the price in the short run if market demand increases in Perfect
Competition?
a. Increase
b. Decrease
c. Unchanged
d. Ambiguous

15. Online music stores such as Apple's iTunes provide an alternative to buying CDs. The
introduction of online music stores has shifted:
a. The supply curve of CDs to the right.
b. The supply curve of VCRs to the right.
c. The demand curve of CDs to the right.
d. The demand curve of CDs to the left.