Management Concepts, Managerial Economics and Ethics Questions and Answers

Answer: C

The responsibilities are i, ii, iii and iv. A business economist makes a reasonable profit on capital employed, makes successful forecasts from an in-depth study of internal and external factors, informs the management of economic trends, and keeps contacts with individuals and data sources. Testing and analysing software (v) is the work of a software tester, not an economist, so the options that include v are wrong, and the options that leave out one of i to iv are incomplete.

Answer: A

Business economics is the discipline that deals with the application of economic theory to business management, helping managers decide on matters such as demand, costs and pricing. A management information system is a system that supplies information to managers, a decision support system helps with specific decisions, and information processing is the handling of data, so these are not branches that apply economic theory. Typical topics in the subject are demand and supply, cost analysis and pricing decisions, which are the economic tools used in running a firm.

Answer: A

The managerial functions are planning, organising, staffing, directing and controlling, which is i to v. Coding and testing are technical activities of software development and are not functions of management, so the options that include vi or vii are wrong, and the others leave out some of the five. Planning, organising, staffing, directing and controlling are the functions that management textbooks list for running any organisation.

Answer: D

When total product is at its highest, marginal product is zero.

Marginal product is the change in total product from one more unit of the variable input. While MP is positive, each extra unit adds to output and TP rises; once MP turns negative, extra units reduce output and TP falls. TP therefore reaches its peak exactly where MP passes through zero.

MP is highest much earlier, at the point of inflexion of the TP curve. It is falling throughout the stretch before TP peaks, so 'falling' does not describe the peak itself, and MP becomes negative only after TP has started to decline.

Answer: A

The economically meaningful region is where total product is rising and marginal product is falling but above zero.

This is Stage II of the law of variable proportions, from the point where average product is at its maximum (AP = MP) to the point where MP falls to zero and TP is at its maximum. A rational firm produces only here.

In Stage I, where average product is still rising, the fixed factor is under-used and adding the variable input raises its average productivity, so the firm should expand. In Stage III MP is negative and TP falls, so using more input lowers output. Both MP and TP rising, or both at their maximum together, never describes the meaningful region: when TP is at its maximum MP is already zero.

Answer: C

The MRTS is 2.

The marginal rate of technical substitution of labour for capital is the amount of capital the firm can give up for one more unit of labour while keeping output the same, the slope of the isoquant:

\[ MRTS_{LK} = -\frac{\Delta K}{\Delta L} = \frac{2}{1} = 2 \]

1/2 is the rate the other way round, labour per unit of capital. 1 and 4 do not follow from giving up 2 units of capital for 1 unit of labour.

Answer: A

The marginal fixed cost is always zero.

Marginal cost is the change in total cost from producing one more unit. Fixed costs, such as rent, insurance and the salaries of permanent staff, stay the same whatever the output in the short run, so producing another unit adds nothing to them:

\[ MFC = \frac{\Delta TFC}{\Delta Q} = \frac{0}{\Delta Q} = 0 \]

That is why marginal cost depends only on variable costs. A fixed cost that rose, fell or rose and then fell with output would not be fixed.

Answer: C

The curve that is not U-shaped is the AFC curve.

Average fixed cost is total fixed cost divided by output. As output rises the same fixed cost is spread over more units, so AFC falls continuously, approaching the output axis but never reaching it: a rectangular hyperbola, not a U.

Marginal cost, average variable cost and average total cost are U-shaped in the short run because of the law of variable proportions: costs per unit fall while returns to the variable factor increase and rise once diminishing returns set in.

Answer: D

The ability is conceptual skill.

Robert Katz identified three managerial skills. Conceptual skill is the ability to see the organisation as a whole, to understand how its parts depend on one another and relate to the environment, and to plan and think strategically. It matters most for top managers.

Technical skill is proficiency in specific methods and tools, most important at the supervisory level. Interpersonal (human) skill is the ability to work with and motivate people, and communication skill is one part of it. Neither involves viewing the organisation as a whole.

Answer: B

Replacing an overused machine is a programmed decision.

Programmed decisions are routine and repetitive. They are made by following established rules, policies or procedures, for example a replacement policy that sets when a worn machine is to be replaced. They need little high-level judgement.

Strategic decisions are non-programmed: long-term, unique and affecting the whole organisation, such as entering a new market. Routine replacement of one machine is not of that kind, and 'organizational' and 'departmental' describe where a decision is taken rather than its nature.