Helping Hands Book

Mechanical Engineering

MANAGERIAL ECONOMICS AND FINANCIAL

ANALYSIS

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Table of Content
Content Page No
Syllabus 4-5
Short Questions 6 - 10
Essay Questions 11 - 24

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 Syllabus
UNIT – I
Introduction to Managerial Economics and demand Analysis: Definition of
Managerial Economics –Scope of Managerial Economics and its relationship with
other subjects – Concept of Demand, Types of Demand, Determinants of
Demand- Demand schedule, Demand curve, Law of Demand and its limitations-
Elasticity of Demand, Types of Elasticity of Demand and Measurement- Demand
forecasting and Methods of forecasting, Concept of Supply and Law of Supply.
UNIT – II
Production and Cost Analysis: Concept of Production function- Cobb-Douglas
Production function- Leontief production function - Law of Variable proportions-
Isoquants and Isocosts and choice of least cost factor combination-Concepts of
Returns to scale and Economies of scale-Different cost concepts: opportunity
costs, explicit and implicit costs- Fixed costs, Variable Costs and Total costs –Cost
–Volume-Profit analysis-Determination of Breakeven point(simple problems)-
Managerial significance and limitations of Breakeven point.
UNIT – III
Introduction to Markets, Theories of the Firm & Pricing Policies: Market Structures:
Perfect Competition, Monopoly, Monopolistic competition and Oligopoly –
Features – Price and Output Determination – Managerial Theories of firm: Marris
and Williamson’s models – other Methods of Pricing: Average cost pricing, Limit
Pricing, Market Skimming Pricing, Internet Pricing: (Flat Rate Pricing, Usage
sensitive pricing) and Priority Pricing.
UNIT – IV
Types of Business Organization and Business Cycles: Features and Evaluation of
Sole Trader, Partnership, Joint Stock Company – State/Public Enterprises and their
forms – Business Cycles: Meaning and Features – Phases of a Business Cycle.

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UNIT – V
Introduction to Accounting & Financing Analysis: Introduction to Double Entry
Systems – Preparation of Financial Statements-Analysis and Interpretation of
Financial Statements-Ratio Analysis – Preparation of Funds flow and cash flow
statements (Simple Problems)
UNIT – VI
Capital and Capital Budgeting: Capital Budgeting: Meaning of Capital-
Capitalization-Meaning of Capital Budgeting-Time value of money- Methods of
appraising Project profitability: Traditional Methods(payback period, accounting
rate of return) and modern methods(Discounted cash flow method, Net Present
Value method, Internal Rate of Return Method and Profitability Index)

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 Short Questions
1. Explain the Scope of Managerial Economics

2. Discuss Economies of Scale

3. Explain the features of monopoly.

4. Explain Sole trader problem

5. Write the Format of funds flow statement

6. Explain IRR significance

7. Write a brief note about Macro Economics (1 Time)

8. What is Isoquants (1 Time)

9. What is an Optimum cost? (1 Time)

10. Explain the Margin of safety (1 Time)

11. Explain the Phases of trade cycle g) What is Accounting Cycle? (1 Time)

12. Economics as a science of wealth: Discuss (1 Time)

13. How to calculate Demand forecasting in case of new products? (1 Time)

14. Explain the Cobb-Douglas production function (1 Time)

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15. Define the Long-run average cost curve (1 Time)

16. What are the objectives of pricing? (1 Time)

17. Write about Partnership deed (1 Time)

18. What is Current Ratio? (1 Time)

19. Define the Law of equi-marginal utility (1 Time)

20. Explain Significance of advertising elasticity of demand (1 Time)

21. What is Diseconomies of scale? (1 Time)

22. Write about Angle of Incidence (1 Time)

23. What is Penetration Pricing? (1 Time)

24. Explain the Prosperity or Full employment (1 Time)

25. What is Trial Balance? (1 Time)

26. Explain the Features of Robbins definition of economics (1 Time)

27. What is Income Elasticity? (1 Time)

28. Explain the Law of increasing returns (1 Time)

29. What is Contribution? (1 Time)

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30. Write about Oligopoly (1 Time)

31. Define the Articles of Association (1 Time)

32. Explain the Debt-equity ratio (1 Time)

33. State the features of Managerial economics.

34. What is price discrimination?

35. What are the advantages and limitations of partnership firm?

36. Explain the significance of double entry system

37. Define functional flow system analysis

38. Give the criteria for a good demand forecasting method.

39. Differentiate between Isoquants and Isocosts.

40. Explain the feature of Oligopoly market?

41. What are the different types of companies?

42. List various types of financial statements.

43. What is profitability index

44. What is the importance of elasticity of demand?

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45. Define margin of safety.

46. List the important features of market structures.

47. What is the need of public enterprises?

48. Define Ledger.

49. Explain the concept of capital budgeting

50. Differentiate between short term and long term demand forecasting
methods.

51. Define cost. How are costs classified?

52. List the features of Monopoly competition.

53. What is partnership deed?

54. Explain time value of money.

55. Write about accounting rate of return

56. Explain the Internal rate of return

57. Describe the Profitability Index

58. Describe the Capital rationing

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59. Point method Vs Arc method of price elasticity of demand

60. Nominal partners

61. Types of public enterprises

62. Bilateral monopoly

63. Business entity concept

64. Draw AR and MR curves under perfect competition and Monopoly

65. What is demand? And explain the types of demand.

66. What is Oligopoly market? And significance of kinked demand curve.

67. Explain the salient features and types of partnership.

68. Describe the importance of ratio analysis.

69. Explain the meaning of capital.

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 Essay Questions
1. Define managerial economics and explain its relation with other subjects.

2. Explain the importance of demand forecasting and describe any two

methods of demand forecasting.

3. Describe the salient features of law of variable propositions.

4. Explain any four concepts of costs.

5. Explain the conditions of perfect competition and how the price and output
determined in the short-run?

6. Describe the importance of pricing and write any two methods of pricing.

7. What is business? And explain the merits and demerits of Joint-Stock

Companies.

8. Explain the causes and consequences of business cycles.

9. Explain the limitations of ratio analysis.

10. The following is an extract of a balance sheet of a company during the last
year.

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11. Compute current ratio and quick ratio. Also interpret the ratios.
(Rs.)
Land and buildings 50,000
Plant and machinery 1,00,000
Furniture and fixtures 25,000
Closing stock 25,000
Sundry debtors 12,500
Wages prepaid 2,500
Sundry creditors 8,000
Rent outstanding 2,000

12. What is capitalization? And explain the need for capital budgeting.

13. Briefly explain the techniques of capital budgeting.

14. Discuss various types of price elasticity of demand.

15. What are the factors on which the elasticity of demand depends?

16. What are the types of price elasticity of demand? Explain them with the
help of diagrams.

17. Explain the measurement of price elasticity of demand

18. What is a production function? How a production function can be plotted

in an isoquant diagram? Explain the properties of an isoquant

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19. Define the following with reference to production function
(i) linear Function
(ii) power function
(iii) quadratic function and
(iv) Cubic function

20. What are the important features of monopoly? How does it differ from
perfect competition?

21. What is oligopoly? Explain the price rigidity under oligopoly in terms of
kinked demand curve

22. Explain the following with reference to Trade cycles:

(i) Recession
(ii) Depression
(iii) recovery
(iv) boom

23. How do you demarcate the sectors of Public enterprises and Joint stock
companies?

24. Explain how managerial economics is linked with other academic

disciplines. (1 Time)

25. Describe how point elasticity is more focused than arc elasticity. (1 Time)

26. Explain how short-run and long-run influence the costs. (1 Time)

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27. A company makes a single product with a sales price of Rs.10 and a
variable cost of Rs.6 per unit, fixed costs are Rs. 60,000.
Calculate
i) Number of units to break even
ii) Sales at break even. (1 Time)

28. Explain the Marris managerial theory of firm growth maximization model. (1
Time)

29. Explain how price determination under monopoly in the long-run. (1 Time)

30. Enumerate the merits and demerits of Partnership firm. (1 Time)

31. What is a business cycle? Describe the different phases of business cycles
along with examples.

32. Calculate Net profit ratio from the following data. (1 Time)
Sales returns Rs. 1,00,000 Administration expenses Rs. 10,000
Gross profit Rs. 40,000 Selling expenses Rs. 10,000
Income from Investment Rs. 5,000 Loss on account of fire Rs. 3,000

33. Explain different accounting concepts and accounting conventions. (1

Time)

34. Explain the nature of capital budgeting. (1 Time)

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35. Radhika enterprises ltd is contemplating the purchase of a machine. Two
machines A and B are available each at Rs. 2,50,000. Net Cash Inflows
(Amt. in Rs.)
Year Machine A Machine B
1 75,000 25,000
2 1,00,000 50,000
3 1,25,000 1,00,000
4 75,000 1,50,000
5 50,000 1,00,000
Calculate Net Present Value Method @10%. (1 Time)

36. Define Managerial economics and explain its nature and scope. (1 Time)

37. Define the law of demand. What are its exceptions? Explain (1 Time)

38. Discuss the economies of scale that accrue to a firm. (1 Time)

39. How do you determine BEP? Show graphical presentation of BEA. (1 Time)

40. Differentiate between Perfect and Imperfect markets. (1 Time)

41. Explain Price-Output determination in Monopolistic competition. (1 Time)

42. Evaluate Sole trader form of organization. (1 Time)

43. Explain the Innovations theory of business cycles. (1 Time)

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44. Journalise the following transactions. (1 Time)
2003 Jan.1 ABC firm commenced business with Rs. 40,000
Jan.2 Deposited into bank Rs. 30,000
Jan.3 Bought goods worth Rs. 48,000 from Kamala
Jan.4 Sold goods worth Rs. 60,000

45. Define Ratio? Explain its limitations

46. A project costs Rs.1,44,000. The average annual cash inflows are likely to
be Rs. 45,000 for a period of 5 years. Calculate the IRR for the project. (1
Time)

47. Explain why capital budgeting is necessary. (1 Time)

48. What is Demand function? How do you determine it? (1 Time)

49. What do you understand by elasticity of Demand? Explain the factors

governing it. (1 Time)

50. Explain the laws of returns with appropriate examples. (1 Time)

51. Explain how Cost-Output relationship helps the entrepreneurs in expansion

decisions. (1 Time)

52. Differentiate between Perfect competition and Monopoly. (1 Time)

53. Explain any four methods of Pricing based on Strategy. (1 Time)

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54. What do you understand by Joint Stock Company? Explain its features. (1
Time)

55. Discuss the measures to control business cycles. (1 Time)

56. A firm sold goods worth Rs.5,00,000 and its gross profit is 20 percent of sales
value. The inventory at the beginning of the year was Rs. 16,000 and at
end of the year was Rs. 14,000. Compute Inventory Turnover ratio and also
the Inventory holding period. (1 Time)

57. Explain types of accounts and rules governing each account. (1 Time)

58. The cost of a project is Rs. 50,000, the annual cash inflows for the next 4
years are Rs. 25,000. What is the payback period for the project? (1 Time)

59. Explain the significance of capital budgeting. (1 Time)

60. Explain how do you measure elasticity of demand. (1 Time)

61. Explain different methods of demand forecasting. (1 Time)

62. Define Production function? How can a producer find it useful? (2 Time)

63. Explain the features of short-run average cost curve and long-run average
cost curve. (1 Time)

64. Discuss the factors those influence price decisions. (1 Time)

65. Explain Williamson’s Managerial Discretionary theory. (1 Time)

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66. Discuss the problems faced by the Public enterprises in India. (1 Time)

67. Explain the Modern theory of Trade cycles. (1 Time)

68. Prepare ledger posting for the following transactions. (1 Time)

2003 Jan.5 Paid rent Rs. 4,000
Jan.6 Sold goods worth Rs. 50,000 to Suresh
Jan.7 Bought goods from Devi Rs. 14,000
Jan.8 Paid salaries Rs. 1,000

69. Differentiate between cash flow and funds flow statements. (1 Time)

70. Discuss different kinds of capital budgeting decisions. (1 Time)

71. A project costs Rs. 25,000 and is expected to generate cash inflows as. (1
Time)
Year Cash inflows PV factor @12%
1 10,000 0.893
2 8,000 0.797
3 9,000 0.712
4 6,000 0.636
5 7,000 0.567
Compute the NPV of the project

72. What is managerial economics? Explain its nature and scope.

73. Define demand and explain the determinants of demand.

74. Write differences between Explicit and Implicit Costs

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75. ABC firm has a fixed cost of Rs.500000/-; selling price per unit is Rs.500/- and
variable cost per unit is Rs.250/- present level of production is 35000 units,
calculate BEP in terms of volume and sales value.

76. Explain the significance of Monopolistic Competition market

77. Explain the Williamson’s managerial theory of a firm.

78. What is sole trading? Explain the merits and demerits of sole trading.

79. Define business cycles. Discuss the phases of business cycles.

80. What do you understand by the analysis and interpretation of financial

statements?

81. From the following information you required to calculate net profit and
cash from operations: Opening stock Rs, 10,000/-; Purchases Rs. 30,000/-;
Sales Rs. 50,000/-; Closing stock Rs. 15,000/- and Expenses Rs. 10,000/-

82. Discuss the traditional methods of project apprising.

83. What is NPV? How it calculates and explains the acceptance rule of NPV?

84. Discuss the importance of managerial economics in decision making.

85. What is cross elasticity of demand? Is it positive for substitute or

complements? Illustrate in a diagram relating to the demand for coffee to
the price of tea.

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86. Why does law of diminishing returns operate? Illustrate with assumed data.

87. The P/V ratio of Lakshmi books Ltd is Rs. 40% and the margin of safety Rs. 30.
Calculate BEP and Net Profit. If the sales volume is Rs. 14000/-.

88. How a firm attains equilibrium in the short run and in the long run under
conditions of perfect competition? Explain.

89. Small is beautiful’. Do you think, this is the reason for the survival of the sole
trader from of business organization? Support your answer with suitable
examples.

90. How ratios are classified for the purpose of financial analysis? With assumed
data illustrate any two types of ratios under each category.

91. What is meant by discounting and time value of money? How is it useful in
capital budgeting?

92. ABC company is considering the purchase of two machines A and B each
costing Rs: 50, 000/-.Earnings after taxes are expected to be as under:

Estimate the two alternatives according to

i. ARR method
ii.NPV method a discount rate of 10%.

93. Explain the role of a Managerial Economist in a Business Firm.

94. Explain various types of Elasticity of demand.

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95. Describe law of variable proportions in detail.

96. Discuss the concept of Cost-Volume-Profit analysis

97. Describe Cobb-Douglas production function.

98. Discuss the price determining system in perfect competition market

99. What are business cycles? Explain its phases in detail.

100. What is double entry book keeping? Explain scope of important records
of Accounting under Double entry system. (1 Time)

101. A company has an investment opportunity costing Rs.1,50,000 with the

following expected net cash flow.

Using 10% as the rate of discount determine the following:

i. Pay -back method
ii. NPV method

102. What is law of demand? Explain various factors that determine the
demand for a computer.

103. Discuss statistical methods of demand forecasting.

104. Explain Cobb-Douglas Production function. (1 Time)

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105. Describe the BEP with the help of a diagram and its uses in business
decision making.

106. What is perfect competition? State its features and how the price is
determined in this market structure.

107. Explain the concepts of flat rate pricing and usage sensitive pricing

108. Write short notes on

(i) public company
(ii) Government Company
(iii) Private Company. (1 Time)

109. What is Funds flow statement? Discuss the significance of funds flow
statement as a tool of financial analysis.

110. Examine the following proposals and evaluate them based on:
i. ARR method (ARR on original investment)
ii.NPV method Initial investment is Rs.12,00,000/- each for all the two
projects, discount factor is 10 %
Year Cash
inflows(Rs.)
Project A Project B
1 6,00,000 5,00,000
2 5,00,000 3,00,000
3 2,00,000 2,00,000
4 3,00,000

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111. Discuss the nature of problems studied in managerial economics. What is
the importance of the study of such problems in business management?

112. What is promotional elasticity of demand? How does it differ from cross
elasticity of demand?

113. A Company reported the following results for two years

Year Sales Profit
I Rs. 40,00,000 Rs. 4,00,000
II Rs. 50,00,000 Rs. 6,00,000
Calculate BEP, PV ratio, fixes cost and Margin of Safety.

114. Explain the concept of Return to Scale and Economics of Scale

115. Explain Market Skimming and priority pricing methods.

116. Define a joint stock company & explain its basic features, advantages &
disadvantages

117. Calculate current ratio, debt-equity ratio and proprietary ratio with the
help of following information

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118. Compare and contrast the NPV and ARR methods of evaluating
investment proposals and illustrate with examples.

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