ECO404 Important short Questions and Answers

Question: Differentiate between explicit and implicit costs.
Answer: Explicit costs: Explicit costs are the actual out of pocket
expenditures of the firm to purchase or hire the inputs it
requires in production. Implicit costs: Implicit costs refer
to the value of the inputs owned and used by the firm in
its own production processes.


Question: Differentiate between accounting profit and economic
profit.
Answer: Business or Accounting Profit: Total revenue minus the
explicit or accounting costs of production. Economic
Profit: Total revenue minus the explicit and implicit costs
of production.


Question: Differentiate between direct demand and derived
demand.
Answer: Direct Demand Individual’s demand for goods and
services that directly satisfy consumer desires is known
as direct demand. This is also known as consumer
demand. Derived Demand Goods that are demanded not
for direct consumption but rather for their use in
providing other goods and services are known as derived
demand. Their demand is derived from the demand for
the products they are used to provide. Input demand is
called derived demand. It is also called business demand.


Question: Differentiate between the situation of surplus and
shortage.
Answer: Surplus: A surplus is created when producers supply
more of a product at a given price than buyers demand.
Surplus describes a condition of excess supply. Shortage:
A shortage is created when buyers demand more of a
product at a given price than producers are willing to
supply. Shortage describes a condition of excess demand.


Question: Differentiate between short run and long run.
Answer: Short run: The short run is the period of time in which
sellers already in the market respond to a change in
equilibrium price by adjusting variable inputs. Buyers
already in the market respond to changes in equilibrium
price by adjusting the quantity demanded for the good or
service. Long run: The long run is the period of time in
which new sellers may enter a market, existing sellers
may exit from a market, existing sellers may adjust fixed
factors of production, and buyers may react to a change
in equilibrium price by changing their tastes and
preferences.

ECO 404 100% MCQ

Question 1 of 20
The price that equates the quantity demanded with the quantity supplied is called:
Select correct option:
Equilibrium price
Price floor
Support price
Nominal Price

Question 2 of 20
In fiscal policy, tax rates are determined by the:
Select correct option:
Government
Central bank
General public
Commercial bank


Question 3 of 20
Percentage change in profit due to one unit change in sales is known as:
Select correct option:
Degree of operating leverage
Economies of scale
Degree of freedom
Cost elasticity


Question 4 of 20
Which economist introduces the simplex method?
Leonid Kantorovich
George B Dantzig
John von Neumann
Ioel Dean

Question 5 of 20
Change in total cost caused by one unit change in output is known as:
Select correct option:
Marginal revenue
Average revenue
Marginal cost
Average cost

Question 6 of 20
Suppose Y = f(x), if Y = 16X + 57? then what will be dY/dX according to rules of
differentiation?
Select correct option:
16
16X
57
57X


Question 7 of 20
Which of the following is also known as analysis of variance?
Select correct option:
T statistic
Z statistic
F statistic
Durbin Watson Statistic

Question 8 of 20
Firms are price makers in which of the following market structures?
Select correct option:
Perfect competition
Monopoly
Monopolistic competition
Oligopoly

Question 9 of 20
We get the point of optimal input combination if:
Select correct option:
lsocost and lsoquant curves are tangent
Budget line and indifference curves are tangent
Demand and supply curves intersect
Isocost and supply curve intersect

Question 10 of 20
lf the percentage change in profit is Rs. 400 and percentage change in sales is Rs. 100 then
what will be the degree of operating leverage?
1
2
3
4
Question 11 of 20
Which of the following computer soft wares are used to solve the problem of linear
programming'?
Select correct option:
Fore Profit software
LINDU
MS Excel Solver
All of the above
Question 12 of 20
Which of the following is a behavioral equation?
Select correct option:
GNP=C+I+G
St=b0+btRt+u1
Profit = TR / TC
None of the given options
Question 13 of 20
If oligopoly firm is producing homogenous product, it is known as:
Select correct option:
Pure oligopoly
Differentiated oligopoly
Triopoly
Monopoly
If there are three sellers, we have Triopoly.
If the product is homogenous, it is called pure oligopoly.
If the product is differentiated, it is called differentiated oligopoly.
Question 14 of 20
Cigarettes are an example of which type of market structure?
Select correct option:
Perfect competition
Monopoly
Monopolistic competition
Oligopoly
Question 15 of 20
The branch of economics which deals with the study of overall behavior of the economy is
known as:
Select correct option:
Microeconomics
Macroeconomics
Development economics
Mathematical economics
Question 16 of 20
Short run average cost curves are U-shaped because of:
Select correct option:
The law of diminishing returns
The law of diminishing utility
The law of demand
The law of supply
Question 17 of 20
Derived demand is also known as:
Select correct option:
Consumer's demand
Direct demand
Market demand
Business demand
Question 18 of 20
Percentage change in output due to 1% change in inputs is called:
Select correct option:
Output elasticity of inputs
Inputs elasticity of output
Elasticity of substitution
Cross price elasticity
Question 19 of 20
Which of the following is TRUE for the law of supply'? :
Select correct option:
There is inverse relationship between the price of a good and quantity demanded of that good
There is positive relationship between the price of a good and quantity demanded of that good
There is positive relationship between the price of a good and quantity supplied of that good
There is inverse relationship between income and quantity supplied of a good
Question 20 of 20
Which of the following shows accounting profit of the firm'?
Select correct option:
Total revenue + explicit or accounting costs of production
Total revenue - explicit or accounting costs of production
Total revenue / explicit or accounting costs of production
Total revenue X explicit or accounting costs of production

ECO 404 Past Papers, MCQ,s

4:- In which of the following games, players decide about their strategy choices at the same
time?
Select correct option:
Repeated games
Non-repeated games
Simultaneous games
Sequential games
5:-Public utilities are an example of:
Select correct option:
Perfect competition
Natural monopoly
Monopolistic competition
Oligopoly
6:- Question # 11 of 20 ( Start time: 06:11:25 PM ) Total Marks: 1
Y = 3.35 + 2.63X shows slop in this regression equation.
Select correct option:

2.63
3.35

4.5
2.5
7:- GNP=C+I+G equation is
Definitional Equation
Behavior equation
8:- Cigarettes are an example of which type of market structure?
Select correct option:
Perfect competition
Monopoly
Monopolistic competition
Oligopoly
9:- Which of the following is TRUE for the law of supply'? :
Select correct option:
There is inverse relationship between the price of a good and quantity demanded of that good
There is positive relationship between the price of a good and quantity demanded of that good
There is positive relationship between the price of a good and quantity supplied of that good
10:-There is inverse relationship between income and quantity supplied of a good
Decreasing part of marginal product of labor curve shows which of the following law?
Select correct option:
Law of diminishing returns
Law of diminishing marginal utility
Law of demand
Law of supply
Y=a +b1X1 +b2X2. This equation is an example of:
Multiple regression model shez correct
Which of the following is an example of a deterministic relation?
Profit relation shez correct
wo products are said to be compliments if cross price elasticity of demand between these two
products is:
Zero shez correct


Out of pocket costs of firm are known as:
Explicit costs shez correct
St = S0 + bt is an example of:
Linear trend analysis shez correct


Multiple equation econometric models consist of:
Select correct option:
Equalities only
Identities only
Behavioral equations only
Both Identities and behavioral equations
Question # 2 of 10
Profit is maximized where:
Select correct option:
Marginal revenue = Marginal cost

Marginal revenue = Average cost
Marginal cost = Average revenue
Average revenue = Average cost



Question # 3 of 10 ( Start time: 02:42:05 PM ) Total Marks: 1
If a firm takes opinion of different individuals for the purpose of forecasting, this is known as:
Select correct option:
Personal insight approach to forecasting
Panel consensus approach to forecasting
Delphi approach to forecasting
Time series analysis

Question # 4 of 10 ( Start time: 02:43:17 PM ) Total Marks: 1
Fluctuations should be random. It is the requirement of which of the following technique(s)?
Select correct option:
Moving average technique only
Exponential smoothing technique only
Both moving average and exponential techniques
Barometric technique

Question # 5 of 10 ( Start time: 02:44:32 PM ) Total Marks: 1
Non-price determinant of supply includes:
Select correct option:
Prices of other goods or services
Input prices
Weather conditions
All of the given options


Question # 6 of 10 ( Start time: 02:45:31 PM ) Total Marks: 1
If the percentage change in profit is Rs. 400 and percentage change in sales is Rs. 100 then what
will be the degree of operating leverage?
Select correct option:
1
2
3
4
Question # 7 of 10 ( Start time: 02:46:43 PM ) Total Marks: 1
Given the Cobb Douglas production function: Q = ALaKb There will be decreasing returns to
scale if:
Select correct option:
a + b > 1
a + b < 1
a + b = 1
a + b = 0
Question # 8 of 10 ( Start time: 02:47:37 PM ) Total Marks: 1
Y = a + bX + e "b" shows ----------------- in this regression equation.
Select correct option:
Intercept
Slope
Elasticity
Power
Question # 9 of 10 ( Start time: 02:49:01 PM ) Total Marks: 1
Given the marginal cost function, MC = 5Q2 – 10Q + 50, what is dMC/dQ?
Select correct option:
5Q + 50
10Q - 10
10Q + 50
5Q – 10Q
Question # 10 of 10 ( Start time: 02:49:44 PM ) Total Marks: 1
In which of the following cases, cost elasticity will be more than one?
Select correct option:
When percentage change in cost is less than the percentage change in output
When percentage change in cost is greater than the percentage change in output
When percentage change in cost is equal to the percentage change in output
When percentage change in cost is less than the percentage change in input

ECO404 Assignment 2 June 2012 Solution Soon Uploaded

SEMESTER SPRING 2012
Managerial Economics (ECO404)
Assignment No. 02
Due Date: 21st June, 2012 Marks: 25
The Case:
One of the classical examples of competitive market structure in Pakistan is
telecommunication sector. The major cellular companies in this sector are Mobilink, Ufone,
Telenor, Warid and Zong. Among these companies, Mobilink, a subsidiary of the Orascom
Telecom Holding, is Pakistan’s leading cellular and Blackberry service provider. It has
more than 30 million subscribers. The company has almost 15,000 employees and is
paying 4 million rupees to these employees. Suppose the company has taken a loan of
100 million rupees from Summit Bank and is paying 3.5 million rupees as interest
payments. The total rent of various franchises is 50 million rupees. According to
"Customer's Perception Survey" conducted by Pakistan Telecom Authority (PTA) in 2011,
the company had been ranked as "excellent" among all cellular service providers in the
country. This survey showed an increased demand of Jazz SIMs in the country.
The demand and supply function of Jazz SIM is as follows:
Qs = - 80+ 8P
Qd = 70 - 2P
Requirements:
a. From the above information, calculate the total explicit cost of the company.
b. Find the equilibrium price level of Jazz SIM and the quantity that must be supplied
in the market by keeping in view the demand of Jazz SIM.
c. Draw a graph to show the equilibrium price and equilibrium quantity of Jazz SIM.
d. Graphically illustrate the effect on equilibrium price if any of the rivals (Ufone,
Telenor, Warid) of Mobilink decreases the price of its SIM?
(Marks = 5 + 10 + 5 + 5)

ECO 404 GDB 11 June 2012 Solution / Idea

The Case:

Before the formulation of World Trade Organization (WTO), there were a lot of barriers in international trade throughout the world. However these barriers seem to be abolished to some extent as member countries of the WTO exceed the figure of 150. All the member countries including Pakistan have agreed and accepted the agreement and principles of WTO like Non-Discrimination, Reciprocity, Binding and Enforceable Commitments and Transparency. According to the World Bank, a lot of fruits have been achieved through this globalization like poverty and income disparity reduction. While considering the case of Pakistan, it seems that Pakistan has not achieved much from the globalization. The poverty condition has been worsening as 65 percent of the people are living below the one dollar poverty line.

Requirements:

Being an economist, analyze the factors which are causing economic slowdown rather than a boost in result of globalization.

Solution:

    Possible Causes for Economic Slow-down and Recession

        Recessions are often caused by a lack in effective demand since people try to accumulate money (new savings are then possibly higher than investments).

        When people perceive that money is becoming scarce or may become scarce in the future, they will reduce spending and increase savings, lowering demand.

        When inflation in a country is higher than in other countries, the currency becomes more expensive, exports become more expensive and exports will decline or grow slower, lowering the economic growth.

        When financial bubbles burst and asset prices decline, investment and consumption decline and thus overall demand declines.

        In case enterprises or consumers first need to reduce a debt burden that has become too high relative to their assets holdings due to fallen asset prices, demand will be pressed down till the debt-asset ratio is back on an acceptable level.

        An external factor as aging demographics may cause a higher savings and lower investment environment.

        External shocks to the economy that increase prices considerably (like increase in oil prices) could lower the demand and put in the economy in recession.

        A growth recession happens when the capacity in the economy expands faster than that demand and the economy grow, resulting in over-capacity and possibly deflation.

        When an economy is facing a period with lesser (growth in) demand due to demographics, nervousness about the future or lack of attractive innovation, and demand cannot be stimulated with lower interest rates, the economy is in a ‘liquidity trap”.

    Economic Growth

        Emerging economies that start to export more manufactured goods and services create higher paying jobs; reduce the pressure on land, increase rural wages, lower unemployment, increase wages further and thus increasing their overall prosperity.

        Increasing foreign investment in a country increases the demand for that currency and increases the value of that currency.

        Increasing demand increases import.

        An overheating economy with fast increasing investments, money supply and credits can lead to higher wages and costs, more expensive exports, lower exports, higher imports, and higher currency (trade) deficits.

        Technological development and innovation increase productivity. This drives investment and increases profits, pushing growth, but also limiting inflation.

        An external impulse like increasing exports could get a country out of a slump.

Fin622 Mid Current paper May 2012

1: calculate accounting profit and break even point (calculation required)

2: WACC based on market value of debit and equity of a firm and not book value. How market values of debit and equity is determined

3: Average accounting return (calculation required)

4: MM theory value of firm increases when its increase its proportion of debit financing

FIN621 Current Paper May 2012 Mid term

Q1. Differentiate between closing entries and adjusting entries. (3)

Q2. Why wrong inventory valuation effects two periods? Explain (3)

Q3. Is it necessary to review every cash transaction by its receipt? (3)

Q4. Explain how the adoptions of FIFO method rather than LIFO will tend to raise or lower the quality of a company’s earnings? Assume the continuance of the inflation. (5)

Q5. Patterson Company reported net income for the current year of Rs. 666,000. During the year the company’s accounts receivable increased by Rs. 50,000, inventory decreased by Rs. 23,000, accounts payable decreased by Rs. 55,000, pre-paid expenses increased by Rs. 35,000, and accrued expenses payable increased by Rs. 14,000. Determine the amount of cash provided by or used for operating activities by the indirect method. (5

Total questions 27
Mcqs 22 1 mark
3 short questions 3 marks
2 long questions 5 marks
Is depreciation a source of fund or not? Give reasons (3)
How cash dividend effect our financial statements (3)
Income statement or cash flow statement which among these give better profitability? Give reason(3)
Calculate Net cash flow from from operating activities using Direct method. (5)
Rs.
a- Cash received from customers --
b- Interest and dividend received --
c- Proceed from sale of Plant --
d- Cash paid to suppliers&Employees --
e- Cash paid for purchase of Investment --
f- Cash paid for purchase of Treasury Stock --
On march 29,1998 Global co. purchased new equipment costing 100,000. Its estimated life is 5 years and Paper copy from vu thirty nine dot com residual value 10,000. For income tax purpose this is classified as a 5-year property and has a depreciation rate rate of 40%. (5)
Required:
Compute annual depreciation expense for each year until equipment is fully depreciated using 200% declining method, with half year convention.(limit the depreciation expense to year 2003)

FIN621 current paper Mid May 2012

QUESTION:
What is the difference between expense and expenditure? (3)

Question: 
What is the principle advantage of using direct method of cash flow statement? (3)

Question:
Why should company prefer to use LIFO instead of FIFO? 

QUESTION:
Complete the table :
sales Beginning inventory Net purchases Ending inventory Cost of good sold Gross profit Operating expenses Net income
300,000 95,000 130,000 44000 ? 119,000 90000 ?
600,000 90,000 340,000 ? 330,000 ? ? 25000

Question:
Classify the following activities as cash flow from operating, investing and financing activities

1.proceed from issuing shares
2.interest received on loans
3.repayment of debt principal,capital lease
4.loans made and acquired of other firm’s debt
5.divinded received from securities.

Fin 621 GDB Solution last date 10 April 2012

Mr. Student has recently graduated from a local business school. He joined Personnel Development Foundation (PDF) as a Junior Consultant Officer in Grade Alpha a week ago. PDF provides following professional services to its clients; employee recruitment, training & development, succession planning, and compensation & retention plans etc. At PDF, Mr. Student has been given a task to develop aptitude tests for the applicants applying for the jobs in the area of Accounting and Finance. One of the questions developed by him is as under;

Marketing expenses of Clients Services Associates (CSA) are estimated at 10% of the next year’s sales. Administrative expenses for the year, excluding bad debts are 5% of sales but 8% of cost of sales. Bad debts are estimated at 2.5% of the sales. Earnings after Tax (EAT) are predicted at Rs. 29,250. Tax rate is 35%.

You are required to find out the following:
a) Develop a profit equation from the above data with values therein to find EAT.

b) Whether the above estimates are in favor of CSA or not? Justify your answer while not exceeding a limit of 25 words

SOLUTIONS

Sales 54545.46
Marketing Expnse 10% 5454.546
Admin Expense 5% 2727.273
Bad Bedts 2.5% 1363.637
Gross Profit 45000
Tax rat is 35% 15750
Earning after tax 29250 29250

MGT602 GDB 2 Solution 17 Jan 2012

Solution
In my opinion the first option is the best solution in prevailing economic conditions of a country, that they should reduce their size of business operations to control the cost of business operations.Five arguments:-

1. 1. To reduce the consequence of double figure inflation rate on their business.
2. 2. Tell the energy crises are over, because energy availability is crucial for entrepreneurs.
3. 3. Tell the improvement of poor law and order situation in the country.
4. 4. Tell the terrorism is eradicated from the country, people feel fear to visit the market’
5. 5. The political condition are not positive which leads to inconsistent government policies, because govt. has to change it polices as per changing political scenario of the country which affect the business.

Following are the challenges that could be faced by an entrepreneur if he chooses the third option?

1. 1. Location
2. 2. Market penetration
3. 3. Competitors
4. 4. Brand
5. 5. Currency shifting
6. 6. Environment
7. 7. Law and regulation for foreigner investors
8. 8. Consumer
9. 9. Customer
10. 10. Quality
11. 11. Logistics’ supports
12. 12. Language
13. 13. Cultural difference
14. 14. Neighbor country relation with native country
15. 15. Masses response towards the products
16. demand & supply

Mth302 Assignment No:2 Fall 2011 solutions

Assignment # 2
MTH302 (Fall 2011)
Question No. 1:
Using the following data: 51, 13, 46, 49, 15, 16, 19, 18, 13, 48, 25, 36, 45, 52, 25, 50, 14, 36, 21,
45, 32, 40, 23, 21, 11, 25, 16, 18, 34, 32.
Solution:
1) Range = Max Value – Min Value
= 52 – 11
= 41
2) 7 Classes Frequency Distribution
First we found Class Width
Class Width = Range / Number of Classes
Number of Classes already given = 7
Now put in formula
= 41 / 7
= 5.85
= Round up 5.85 to 6
= 6
3) Relative Frequency (Column 3)
4) Percentage relative frequency (Column 4)
Tabulating Numerical Data
Frequency Distribution
Data in Ordered Array
11, 13, 13, 14, 15, 16, 16, 18, 18,19, 21, 21, 23, 25, 25, 25, 32, 32, 34, 36, 36, 40,45, 45, 46, 48, 49,50, 51, 52

Class Frequency Relative Frequency
= Frequency of the
Class Interval / Total
Frequency
%age Relative Frequency
= Frequency of the Class
Interval / Total Frequency
11 – 16 7 7/30=0.233 23
17 – 22 5 5/30=0.167 17
23 – 28 4 4/30=0.133 13
29 – 34 3 3/30=0.10 10
35 – 40 3 3/30=0.10 10
41 – 46 3 3/30=0.10 10
47 – 52 5 5/30=0.167 17
TOTAL: 30 1 100
5) The Mean
= (Sum of Total Value) / (Number of Total Values)
= 889 / 30
= 29.63