All India Management Association (AIMA) 2007 M.B.A Marketing Management Business Economics – I - Question Paper

increases without any change in the price of inputs.
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28. B MPL = 0.5L (36)0.5 = 3L
W = MPL × P (W is the market wage rate).
120 = 3L × 2
Or, L = 20 units.
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29. D The production function for a firm Q = 200L – 0.2L2
APL = = 200 –0.2L.
When L = 5, APL = 200 – 0.2(5) = 200 – one = 199 units.
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30. B I. Q = K1/2 + L1/2
When K = one and L = 1, Q = (1)1/2 + (1)1/2 = 2
When K = two and L = 2, Q = (2)1/2 + (2)1/2 = 2.82
When inputs are doubled, output are less than doubled. It is a case for
decreasing returns to scale.
II. Q = 3K + 4L
When K = one and L = 1, Q = three + four = 7
When K = two and L = 2, Q = six + 8= 14
When inputs are doubled, output are also doubled.
? It is a case of constant return to scale.
III. Q = 5K1/2 L1/2
When K = one and L = 1, Q = 5(1)1/2 (1)1/2 = 5
When K = two and L = 2, Q = five (2)1/2 (2)1/2 = 10
? It is a constant return to scale.
IV. Q = K1/2 L2/3
When K = one and L = 1, Q = (1)1/2. (1)2/3 = one ? one = 1
When K = two and L = 2, Q = (2)1/2 (2)2/3 = 1.41 ? 1.58 = 2.23
? It is an increasing return to scale.
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31. A The MRTS is equal to the ratio of the marginal productivities of the 2 products
that is MPK/MPL
3K-0.7L0.3/3K0.3L-0.7
K-0.7L0.3/K0.3L-0.7
L/K.
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32. E The avg. variable cost is equal to 150 – 25Q + 30Q2
The avg. fixed cost is equal to 1200/Q.
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33. D As the fixed cost is fixed at all points, the shape of the curve is horizontal straight
line.
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34. C avg. fixed cost is computed as total fixed cost divided by the number of output
produced. It always declines as output increases. Even if the firm produces zero
output, the avg. fixed cost will be positive because total fixed cost is constant.
(a) Is not the ans because if a firm produces zero output in the short period,
its total cost will not be zero because total fixed cost is constant.
(b) Is not the ans because its variable cost will not be positive.
(c) Is the ans because its fixed cost will be positive
(d) Is not the ans because avg. cost will not be zero rather it will be a
positive number.
(e) Is not the ans because fixed cost will never be negative.
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18
ans cause
35. D Since functions (I) and (III) have fixed cost components i.e. 20 and 100, they are

Earning:   Approval pending.