The IIT Madras BS Managerial Economics (Managerial Economics) End Term paper sat on 31 Aug 2025, in the May 2025 term, set QDB3: 43 questions for 45 marks in 180 minutes. Every question is below with its answer. Take it as a timed mock test to be marked, or read it through first.
Suppose a profit-maximizing monopolist is producing 800 units of output and is charging a price of ₹40 per unit.
Based on the above data, answer the given subquestions.
If the price elasticity of demand for the product is –2, find the marginal cost (in ₹) of the last unit produced ____________
Correct answer: 20
Suppose a profit-maximizing monopolist is producing 800 units of output and is charging a price of ₹40 per unit.
Based on the above data, answer the given subquestions.
What is the firm’s percentage markup of price over marginal cost (as a % of the price)? ___________
Correct answer: 50
Suppose a profit-maximizing monopolist is producing 800 units of output and is charging a price of ₹40 per unit.
Based on the above data, answer the given subquestions.
Suppose that the average cost of the last unit produced is ₹15 and the firm’s fixed cost is ₹2000. Find the firm’s profit (in ₹)___________
Correct answer: 20000
Two used car dealerships compete side by side on a main road. The first, Hamid’s Cars, always sells high-quality cars that it carefully inspects and, if necessary, services. On average, it costs Hamid’s $7000 to buy and service each car that it sells. The second dealership, Latif’s Motors, always sells lower-quality cars. On average, it costs Latif’s only $4000 for each car that it sells.If consumers knew the quality of the used cars they were buying, they would pay $9,000 on average for Hamid’s cars and only $6000 on average for Latif’s cars.
Without more information, consumers do not know the quality of each dealership’s cars. In this case, they would figure that they have a 50-50 chance of ending up with a high quality car, and are thus willing to pay $7500 for a car. Hamid has an idea: He will offer a bumper-to-bumper warranty for all cars he sells. He knows that a warranty lasting Y years will cost $500Y on average, and he also knows that if Latif tries to offer the same warranty, it will cost Latif $1000Y on average.
Suppose Hamid offers a one-year warranty on all of the cars he sells.
Based on the above data, answer the given subquestions.
What is Latif’s profit (per car in $) if he does not offer a one-year warranty?______________
Correct answer: 2000
Two used car dealerships compete side by side on a main road. The first, Hamid’s Cars, always sells high-quality cars that it carefully inspects and, if necessary, services. On average, it costs Hamid’s $7000 to buy and service each car that it sells. The second dealership, Latif’s Motors, always sells lower-quality cars. On average, it costs Latif’s only $4000 for each car that it sells.If consumers knew the quality of the used cars they were buying, they would pay $9,000 on average for Hamid’s cars and only $6000 on average for Latif’s cars.
Without more information, consumers do not know the quality of each dealership’s cars. In this case, they would figure that they have a 50-50 chance of ending up with a high quality car, and are thus willing to pay $7500 for a car. Hamid has an idea: He will offer a bumper-to-bumper warranty for all cars he sells. He knows that a warranty lasting Y years will cost $500Y on average, and he also knows that if Latif tries to offer the same warranty, it will cost Latif $1000Y on average.
Suppose Hamid offers a one-year warranty on all of the cars he sells.
Based on the above data, answer the given subquestions.
What is Latif’s profit (per car in $) if he offers a one-year warranty?______________
Correct answer: 2500
Two used car dealerships compete side by side on a main road. The first, Hamid’s Cars, always sells high-quality cars that it carefully inspects and, if necessary, services. On average, it costs Hamid’s $7000 to buy and service each car that it sells. The second dealership, Latif’s Motors, always sells lower-quality cars. On average, it costs Latif’s only $4000 for each car that it sells.If consumers knew the quality of the used cars they were buying, they would pay $9,000 on average for Hamid’s cars and only $6000 on average for Latif’s cars.
Without more information, consumers do not know the quality of each dealership’s cars. In this case, they would figure that they have a 50-50 chance of ending up with a high quality car, and are thus willing to pay $7500 for a car. Hamid has an idea: He will offer a bumper-to-bumper warranty for all cars he sells. He knows that a warranty lasting Y years will cost $500Y on average, and he also knows that if Latif tries to offer the same warranty, it will cost Latif $1000Y on average.
Suppose Hamid offers a one-year warranty on all of the cars he sells.
Based on the above data, answer the given subquestions.
What is Hamid’s profit (per car in $) if Latif’s does not offer a one-year warranty? ___________
Correct answer: 1500
Two used car dealerships compete side by side on a main road. The first, Hamid’s Cars, always sells high-quality cars that it carefully inspects and, if necessary, services. On average, it costs Hamid’s $7000 to buy and service each car that it sells. The second dealership, Latif’s Motors, always sells lower-quality cars. On average, it costs Latif’s only $4000 for each car that it sells.If consumers knew the quality of the used cars they were buying, they would pay $9,000 on average for Hamid’s cars and only $6000 on average for Latif’s cars.
Without more information, consumers do not know the quality of each dealership’s cars. In this case, they would figure that they have a 50-50 chance of ending up with a high quality car, and are thus willing to pay $7500 for a car. Hamid has an idea: He will offer a bumper-to-bumper warranty for all cars he sells. He knows that a warranty lasting Y years will cost $500Y on average, and he also knows that if Latif tries to offer the same warranty, it will cost Latif $1000Y on average.
Suppose Hamid offers a one-year warranty on all of the cars he sells.
Based on the above data, answer the given subquestions.
What is Hamid’s profit (per car in $) if Latif’s offers a one-year warranty? _____________
Correct answer: 0
Two used car dealerships compete side by side on a main road. The first, Hamid’s Cars, always sells high-quality cars that it carefully inspects and, if necessary, services. On average, it costs Hamid’s $7000 to buy and service each car that it sells. The second dealership, Latif’s Motors, always sells lower-quality cars. On average, it costs Latif’s only $4000 for each car that it sells.If consumers knew the quality of the used cars they were buying, they would pay $9,000 on average for Hamid’s cars and only $6000 on average for Latif’s cars.
Without more information, consumers do not know the quality of each dealership’s cars. In this case, they would figure that they have a 50-50 chance of ending up with a high quality car, and are thus willing to pay $7500 for a car. Hamid has an idea: He will offer a bumper-to-bumper warranty for all cars he sells. He knows that a warranty lasting Y years will cost $500Y on average, and he also knows that if Latif tries to offer the same warranty, it will cost Latif $1000Y on average.
Suppose Hamid offers a one-year warranty on all of the cars he sells.
Based on the above data, answer the given subquestions.
Will Latif’s match Hamid’s one-year warranty?
Yes
No
Correct answer
Yes
Two used car dealerships compete side by side on a main road. The first, Hamid’s Cars, always sells high-quality cars that it carefully inspects and, if necessary, services. On average, it costs Hamid’s $7000 to buy and service each car that it sells. The second dealership, Latif’s Motors, always sells lower-quality cars. On average, it costs Latif’s only $4000 for each car that it sells.If consumers knew the quality of the used cars they were buying, they would pay $9,000 on average for Hamid’s cars and only $6000 on average for Latif’s cars.
Without more information, consumers do not know the quality of each dealership’s cars. In this case, they would figure that they have a 50-50 chance of ending up with a high quality car, and are thus willing to pay $7500 for a car. Hamid has an idea: He will offer a bumper-to-bumper warranty for all cars he sells. He knows that a warranty lasting Y years will cost $500Y on average, and he also knows that if Latif tries to offer the same warranty, it will cost Latif $1000Y on average.
Suppose Hamid offers a one-year warranty on all of the cars he sells.
Based on the above data, answer the given subquestions.
Is it a good idea for Hamid’s to offer a one-year warranty?
Yes
No
Correct answer
No
Two used car dealerships compete side by side on a main road. The first, Hamid’s Cars, always sells high-quality cars that it carefully inspects and, if necessary, services. On average, it costs Hamid’s $7000 to buy and service each car that it sells. The second dealership, Latif’s Motors, always sells lower-quality cars. On average, it costs Latif’s only $4000 for each car that it sells.If consumers knew the quality of the used cars they were buying, they would pay $9,000 on average for Hamid’s cars and only $6000 on average for Latif’s cars.
Without more information, consumers do not know the quality of each dealership’s cars. In this case, they would figure that they have a 50-50 chance of ending up with a high quality car, and are thus willing to pay $7500 for a car. Hamid has an idea: He will offer a bumper-to-bumper warranty for all cars he sells. He knows that a warranty lasting Y years will cost $500Y on average, and he also knows that if Latif tries to offer the same warranty, it will cost Latif $1000Y on average.
Suppose Hamid offers a one-year warranty on all of the cars he sells.
Based on the above data, answer the given subquestions.
What if Hamid offers a two-year warranty? Will this generate a credible signal of quality?
Yes
No
Correct answer
Yes
Based on the above data, answer the given subquestions.
The equilibrium price of ball pens in the domestic market without any imports will be P*= _______
Correct answer: 50
Based on the above data, answer the given subquestions.
Consumer surplus in this case will be CS = ____________
Correct answer: 1250 or 1250000
Based on the above data, answer the given subquestions.
Producer surplus in this case will be PS = ____________
Correct answer: 1250 or 1250000
Based on the above data, answer the given subquestions.
In case of import without tariff, how many total units of ball pens will be imported _______________
Correct answer: 60 or 60000
Based on the above data, answer the given subquestions.
In case of import without tariff, how many units of ball pens are being supplied by domestic firms ____________
Correct answer: 20 or 20000
Based on the above data, answer the given subquestions.
With the tariff, how many units would be imported? ____________
Correct answer: 40 or 40000
Based on the above data, answer the given subquestions.
How much would domestic producer surplus change compared to the case with imports without tariffs if the government introduces a ₹10 import duty per ball pen?____________
Correct answer: 250000 or 250
Based on the above data, answer the given subquestions.
How much revenue would the domestic government collect from the imports of ball pens due to this import duty of ₹10? ____________
Correct answer: 400 or 400000
The market demand curve for pizzas is P=300-Q and the market supply curve is P=60+2Q. A tax of t=15 INR is imposed on one unit of pizza sold. Answer the given subquestions.
The equilibrium quantity and price before incidence of tax are
Correct answer
The market demand curve for pizzas is P=300-Q and the market supply curve is P=60+2Q. A tax of t=15 INR is imposed on one unit of pizza sold. Answer the given subquestions.
Consumer surplus before incidence of tax is
INR 4500
INR 2700
INR 3200
INR 4200
Correct answer
INR 3200
The market demand curve for pizzas is P=300-Q and the market supply curve is P=60+2Q. A tax of t=15 INR is imposed on one unit of pizza sold. Answer the given subquestions.
Producer surplus before incidence of tax is
INR 6400
INR 4600
INR 3700
INR 2700
Correct answer
INR 6400
The market demand curve for pizzas is P=300-Q and the market supply curve is P=60+2Q. A tax of t=15 INR is imposed on one unit of pizza sold. Answer the given subquestions.
The equilibrium quantity after the incidence of tax is
Correct answer
The market demand curve for pizzas is P=300-Q and the market supply curve is P=60+2Q. A tax of t=15 INR is imposed on one unit of pizza sold. Answer the given subquestions.
The new price that buyer pays after incidence of tax is
P=220 INR
P=190 INR
P=180 INR
P=225 INR
Correct answer
P=225 INR
The market demand curve for pizzas is P=300-Q and the market supply curve is P=60+2Q. A tax of t=15 INR is imposed on one unit of pizza sold. Answer the given subquestions.
The net price received by the seller after incidence of tax
P=220 INR
P=225 INR
P=190 INR
P=210 INR
Correct answer
P=210 INR
The market demand curve for pizzas is P=300-Q and the market supply curve is P=60+2Q. A tax of t=15 INR is imposed on one unit of pizza sold. Answer the given subquestions.
The loss in consumer surplus due to incidence of tax is
527.5 INR
387.5 INR
478.5 INR
268.5 INR
Correct answer
387.5 INR
The market demand curve for pizzas is P=300-Q and the market supply curve is P=60+2Q. A tax of t=15 INR is imposed on one unit of pizza sold. Answer the given subquestions.
The loss in producer surplus due to incidence of tax is
INR 565
INR 845
INR 775
INR 695
Correct answer
INR 775
The market demand curve for pizzas is P=300-Q and the market supply curve is P=60+2Q. A tax of t=15 INR is imposed on one unit of pizza sold. Answer the given subquestions.
The total tax revenue is
INR 1255
INR 1075
INR 1535
INR 1125
Correct answer
INR 1125
The market demand curve for pizzas is P=300-Q and the market supply curve is P=60+2Q. A tax of t=15 INR is imposed on one unit of pizza sold. Answer the given subquestions.
Deadweight loss of tax is
INR 48.5
INR 37.5
INR 89.5
INR 68.5
Correct answer
INR 37.5
A beekeeper lives adjacent to an apple orchard. The orchard owner benefits from the bees because each hive pollinates about one acre of apple trees. The orchard owner pays nothing for this service, however, because the bees come to the orchard without his having to do anything. Because there are not enough bees to pollinate the entire orchard, the orchard owner must complete the pollination by artificial means, at a cost of $10 per acre of trees.
Beekeeping has a marginal cost , where is the number of beehives. Each hive yields $30 worth of honey.
Based on the above data, answer the given subquestions.
What should be the socially efficient number of hives that the beekeeper should maintain ____________
Correct answer: 6
A beekeeper lives adjacent to an apple orchard. The orchard owner benefits from the bees because each hive pollinates about one acre of apple trees. The orchard owner pays nothing for this service, however, because the bees come to the orchard without his having to do anything. Because there are not enough bees to pollinate the entire orchard, the orchard owner must complete the pollination by artificial means, at a cost of $10 per acre of trees.
Beekeeping has a marginal cost , where is the number of beehives. Each hive yields $30 worth of honey.
Based on the above data, answer the given subquestions.
How many beehives will the beekeeper maintain if we ignore the apple orchard ____________
Correct answer: 4
Imagine that you have been working after college and now face the decision of whether or not to get an MBA at a prestigious institution. The cost of getting the MBA is 10. (Again, you can decide on the denomination, but rest assured that this sum includes the income lost over the course of the two years you will be studying!) Your future value is your stream of income, which depends on the strength of the labor market for the next decade. If the labor market is strong then your income value from having an MBA is 32, while your income value from your current status is 12. If the labor market is average then your income value from having an MBA is 16, while your income value from your current status is 8. If the labor market is weak then your income value from having an MBA is 12, while your income value from your current status is 4. Further assume that the probability of a strong labor market is p, of an average labor market is 0.5 and of a weak labor market is 0.5− p.
Based on the above data, answer the given subquestions.
For which values of p will you decide not to get an MBA?
Correct answer
Imagine that you have been working after college and now face the decision of whether or not to get an MBA at a prestigious institution. The cost of getting the MBA is 10. (Again, you can decide on the denomination, but rest assured that this sum includes the income lost over the course of the two years you will be studying!) Your future value is your stream of income, which depends on the strength of the labor market for the next decade. If the labor market is strong then your income value from having an MBA is 32, while your income value from your current status is 12. If the labor market is average then your income value from having an MBA is 16, while your income value from your current status is 8. If the labor market is weak then your income value from having an MBA is 12, while your income value from your current status is 4. Further assume that the probability of a strong labor market is p, of an average labor market is 0.5 and of a weak labor market is 0.5− p.
Based on the above data, answer the given subquestions.
If P=0.4, what is the highest price the university can charge for you to be willing to go ahead and get an MBA? ____________
Correct answer: 2.8
Based on the above data, answer the given subquestions.
What price would this monopolist will set? ____________
Correct answer: 25
Based on the above data, answer the given subquestions.
How many apartments will he offer for rent?____________
Correct answer: 50
Based on the above data, answer the given subquestions.
What price would he set if he had 40 apartments? ____________
Correct answer: 30
Based on the above data, answer the given subquestions.
How many would he rent if he had 40 apartments?____________
Correct answer: 40
What is true about monopolistic competition
Firms compete by selling differentiated products that are highly, but not perfectly, substitutable
Entry and exit are free in the market
None
Both the firms compete by selling differentiated products that are highly, but not perfectly, substitutable and entry and exit are free in the market
Correct answer
Both the firms compete by selling differentiated products that are highly, but not perfectly, substitutable and entry and exit are free in the market
Choose the correct statement
Quasi linear preferences are linear in one good
U = min{ax, by} represents complements
U = ax+by represents substitutes
All of these
Correct answer
All of these
Choose the correct alternative
First-degree price discrimination is the practice of attempting to price each unit at the consumer’s reservation price
Outcome in First-degree price discrimination is not Pareto efficient
Both the first-degree price discrimination is the practice of attempting to price each unit at the consumer’s reservation price and outcome in First-degree price discrimination is not Pareto efficient
None
Correct answer
First-degree price discrimination is the practice of attempting to price each unit at the consumer’s reservation price
Adverse selection occurs when
a person takes more risks that are not known to the life insurance company because he has life insurance
a person buys life insurance because he has a risky lifestyle that is not known to the life insurance company
a person is a risk lover
pregnant women with health insurance make more doctor visits than uninsured pregnant women
Correct answer
a person buys life insurance because he has a risky lifestyle that is not known to the life insurance company
Moral hazard occurs when contracts are written in such a way that
the interests of agent and principal converge
the interests of agent and principal diverge
agents will wish to maximize the principal's utility
production and risk-bearing efficiency are achieved
Correct answer
the interests of agent and principal diverge
If the income of the consumer increases and the one of the prices decreases at the same time, the consumer will not necessarily be at least as well-off.
TRUE
FALSE
Correct answer
FALSE
A monopolist never produces in
The inelastic region of market demand curve
The elastic region of market demand curve
The whole demand curve
None of these
Correct answer
The inelastic region of market demand curve
