NATIONAL INSTITUTE OF TECHNOLOGY ROURKELA

MID - TERM EXAMINATION, 2015

SESSION: 2014 2015 (SPRING)
(Open Elective)

Subject code: HS-341 Subject Name: Managerial Economics Dept. Code: HS

No. of pages: 2 Full Marks: 30 Duration: 2 Hours

Figures at the right hand margin indicate marks.

All parts of a question should be answered at one place.

Q. No Marks
Section A
Answer the following questions 3x5
1. What is consumers equilibrium? Discuss consumers equilibrium with the help of
indifference curve approach.

2. What is price effect? Decompose price effect into income and substitution effect
through Slutsky approach. How Slutsky approach is different from Hicksian
approach?

3. Define Price elasticity of demand and distinguish its various types. How would you
measure it? Discuss the role of price elasticity of demand in managerial decisions.

Section B
Answer the following questions 5x2
1. It was ascertained that the demand law of vegetable oil for Mr. Arvind and family is
x=100-2p4. The vegetable oil was being sold at Rs. 40 per kg. If its price decreases by
10%, find the elasticity of demand.

2. The utility function of a consumer is given by U=q1q2. Suppose Pq1=1 and Pq2=2. The
consumer wants to spend Rs. 40 for both the goods. What will be his demand function
for q1 and q2?

3. There are only two consumers in the market. Their demand equations are:
Individual 1: X1=45-9p
Individual 2: X2=7-p
Derive market demand equation?

4. A firms sale of product X is 15 thousands when it declares the price of X as Rs. 5.

When this firm declares a price increases of 10% for the product, its sale of X drops
from 15 thousands unit to 12.5 thousand units.
i) Find price elasticity of demand, assuming linear demand curve.
ii) Given the elasticity co-efficient found in (i) find the change in sales if the
firm would have decide to decrease the price by 10%.

5. Derive the relationship between AR, MR and price elasticity of demand (ep)?
 Section C

Write short notes on the following 5x1

1. Budget line
2. Inferior good
3. Cross elasticity of demand
4. Demand function
5. Returns to scale
**End**