MEFA SHORT QUESTIONS AND ANSWERS FROM PREVIOUS QUESTION PAPERS

set-1

Identify nature of managerial economics through its definitions (4M)

b) Identify formula for any one method of measuring demand elasticity and describe
variables used in it.
(4M)
c) What are the uses of Cobb-Douglas production functions and where it can be
applicable?
(4M)
d) What are the different phases in business cycle and explain with the help of graph (4M)
e) Explain the convention of Conservatism in accounting (3M)
f) What is IRR and identify suitable formula for Internal Rate of Return (3M

set-2

Identify different scope areas of managerial economics? (4M)

b) Compare Point & Arc Elasticity of Demand (4M)
c) Explain Law of Variable Proportion? (4M)
d) List various features of Joint Stock Company. (4M)
e) Compare the convention of Consistency & Full Disclosure in accounting (3M)
f) List & identify formula for Net Present Value & Profitability Index (3M)

set-3

Differentiate Producer Durable & Non Durable and Consumer Durable & Non
Durable Goods Demand?
(4M)
b) How demand is forecasted through method of least squares method? (4M)
c) Explain Returns to Scale with the help of graph? (4M)
d) List various features of Departmental Type of Undertaking. (4M)
e) List & explain various functions of accounting (3M)
f) List & explain various steps involved in Capital Budgeting (3M)

set-4

How knowledge of Economics, Management and Operations Research helpful in

decision making?
(4M)
b) List qualitative methods of demand forecasting and explain opinion poll
methods?
(4M)
c) Identify properties of Iso-Product Curves with the help of graph? (4M)
d) Differentiate Privatisation & Liberlisation concepts. (4M)
e) List & explain different types of errors in preparation of trial balance. (3M)
f) Nature of Capital Budgeting Project Decisions (3M)
set-1

What is demand? And explain the types of demand. 3M

b) Explain Cobb-Douglas Production function. 4M
c) What is Oligopoly market? And significance of kinked demand curve. 4M
d) Explain the salient features and types of partnership. 4M
e) Describe the importance of ratio analysis. 4M
f) Explain the meaning of capital. 3M

set-2

a) Explain the law of demand and types of demand. 4M

b) Describe the salient features of Isoquants. 3M
c) Explain the conditions of monopoly. 4M
d) Describe the merits and demerits of sole trader. 4M
e) Explain the double entry system. 4M
f) What is Capitalization

set-3

a) Define Managerial Economics. 3M

b) Isoquants Vs. Iso costs. 4M
c) Salient features of Oligopoly and kinked demand curve. 4M
d) Merits and demerits of partnership. 4M
e) Importance of ratio analysis. 4M
f) Explain the need for capital budgeting.

Set-4

a) Explain the scope of Managerial Economics. 3M

b) Explicit Vs. Implicit costs. 4M
c) Oligopoly and kinked demand curve. 4M
d) Salient features of partnership. 4M
e) Significance of ratio analysis. 4M
f) Explain the need for capital budgeting. 3M
Set-1
A)Identify nature of managerial economics through its definitions (4M)
Managerial Economics is a Science
Managerial Economics is an essential scholastic field. It can be compared to science in a sense
that it fulfils the criteria of being a science in following sense:
Science is a Systematic body of Knowledge. It is based on the methodical observation.
Managerial economics is also a science of making decisions with regard to scarce
resources with alternative applications. It is a body of knowledge that determines or
observes the internal and external environment for decision making.
Managerial Economics requires Art
Managerial economist is required to have an art of utilising his capability, knowledge and
understanding to achieve the organizational objective. Managerial economist should have an art
to put in practice his theoretical knowledge regarding elements of economic environment.
Managerial Economics for administration of organization
Managerial economics helps the management in decision making. These decisions are based on
the economic rationale and are valid in the existing economic environment.
Managerial economics is helpful in optimum resource allocation
The resources are scarce with alternative uses. Managers need to use these limited resources
optimally. Each resource has several uses. It is manager who decides with his knowledge of
economics that which one is the preeminent use of the resource

b) Identify formula for any one method of measuring demand elasticity and describe
variables used in it.
Total Expenditure Method:
Under this method, we measure elasticity of demand by examining the change in the total
expenditure due to a change in price.
Look at the following demand schedule relating to handkerchiefs:

Unity Elasticity:
When the total amount of money spent remains the same (e.g., between Nos. 2 and 3 above), the
elasticity is said to be unity.
Greater Than Unity:
When the total amount of money spent increases with a fall in price (or decreases with a rise in
price), the elasticity is said to be greater than unity (as between the two prices Nos. 3 and 4).
Less than Unity:
When the total amount of money spent decreases with a fall in price (or increases with a rise in
price), the elasticity is said to be less than unity (e.g., between the two prices Nos. 1 and 2). We
can also represent this method diagrammatically (Fig. 10.5). Take total expenditure along the X-
axis and price along the Y-axis. We get a backward bending curve Olum. The portion O1
represents less than unity elasticity, because an increase or decrease in price increases or
decreases the total expenditure.

c) What are the uses of Cobb-Douglas production functions and where it can be
applicable?
Formulation
In its most standard form for production of a single good with two factors, the function is
Y=ALK
where:
 Y = total production (the real value of all goods produced in a year or 365,25 days)
L = labor input (the total number of person-hours worked in a year or 365,25 days)
K = capital input (the real value of all machinery, equipment, and buildings)
A = total factor productivity and your usual depreciation by utility in day after
and are the output elasticities of capital and labor, respectively. These values are
constants determined by available technology

d) What are the different phases in business cycle and explain with the help of graph (4M)
The different phases of business cycles are shown in Figure-1:

There are basically two important phases in a business cycle that are prosperity and depression.
The other phases that are expansion, peak, trough and recovery are intermediary phases.
Figure-2 shows the graphical representation of different phases of a business cycle:

e) Explain the convention of Conservatism in accounting (3M)

Conservatism is a political and social philosophy that promotes retaining traditional social
institutions in the context of culture and civilization. By some definitions, conservatives have
variously sought to preserve institutions including religion, monarchy, parliamentary
government, property rights and the social hierarchy, emphasizing stability and continuity, while
the more extreme elements called reactionaries oppose modernism and seek a return to "the way
things were".[1][2] The first established use of the term in a political context originated with
Franois-Ren de Chateaubriand in 1818,[3] during the period of Bourbon restoration that sought
to roll back the policies of the French Revolution. The term, historically associated with right-
wing politics, has since been used to describe a wide range of views.
f) What is IRR and identify suitable formula for Internal Rate of Return (3M
internal rate of return (IRR) for a possible investment is time-consuming and inexact. IRR
calculations must be performed via guesses, assumptions, and trial and error. Essentially, an IRR
calculation begins with two random guesses at possible values and ends with either a validation
or rejection. If rejected, new guesses are necessary

set-2
Identify different scope areas of managerial economics? (4M)
Managerial Economics deals with allocating the scarce resources in a manner that minimizes the
cost. As we have already discussed, Managerial Economics is different from microeconomics
and macro-economics. Managerial Economics has a more narrow scope - it is actually solving
managerial issues using micro-economics. Wherever there are scarce resources, managerial
economics ensures that managers make effective and efficient decisions concerning customers,
suppliers, competitors as well as within an organization. The fact of scarcity of resources gives
rise to three fundamental questions-
a. What to produce?
b. How to produce?
c. For whom to produce?
.
The first question relates to what goods and services should be produced and in what
amount/quantities. The managers use demand theory for deciding this. The demand theory
examines consumer behaviour with respect to the kind of purchases they would like to make
currently and in future; the factors influencing purchase and consumption of a specific good or
service; the impact of change in these factors on the demand of that specific good or service; and
the goods or services which consumers might not purchase and consume in future. In order to
decide the amount of goods and services to be produced, the managers use methods of demand
forecasting.

b) Compare Point & Arc Elasticity of Demand (4M)

Comparing Point Elasticity and Arc Elasticity
Let's compare the numbers that we calculated for point elasticity and for arc elasticity:
Point elasticity A to B: -2
Point elasticity B to A: -1
Arc elasticity A to B: -1.4
Arc elasticity B to A: -1.4
In general, it will be true that the value for arc elasticity between two points on a demand curve
will be somewhere in between the two values that can be calculated for point elasticity.
Intuitively, it is helpful to think about arc elasticity as a sort of average elasticity over the region
between points A and B
c) Explain Law of Variable Proportion? (4M)
Law of variable proportions occupies an important place in economic theory. This law examines
the production function with one factor variable, keeping the quantities of other factors fixed. In
other words, it refers to the input-output relation when output is increased by varying the
quantity of one input.
When the quantity of one factor is varied, keeping the quantity of other factors constant, the
proportion between the variable factor and the fixed factor is altered; the ratio of employment of
the variable factor to that of the fixed factor goes on increasing as the quantity of the variable
factor is increased.

d) List various features of Joint Stock Company. (4M)

1. Voluntary Association of Person
A company is a voluntary association of persons with a common motive in the combination of
joint hands.
2. AN Artificial Person
A company is called an artificial person. It is a person created by law. The company being an
artificial person has many of the rights. A joint stock company in Pakistan is incorporated and
regulated under the Companies Ordinance, 1984.
3. Separate Legal Entity
The company itself is a separate legal entity. Its reality is completely different from others. It
identifies its own name and seal. In case of any loss, shareholders cannot be sued for the debts
taken by the company.
4. Limited Liability
One of the important characteristic of the company is its limited liability. The liability of
shareholders of the company is limited against the value of the share purchased by them. In case
of any loss to the company, shareholder cannot be called upon to pay more than the value of the
shares held by him.
5. Separation Of Ownership From Management
The share holders, who are the owners of the company, are large in number, scattered all over the
world. The owner and management are two separate hands.

e) Compare the convention of Consistency & Full Disclosure in accounting (3M)

The consistency principle states that companies should use the same accounting treatment for
similar events and transactions over time. In other words, companies shouldn't use one
accounting method today, use another tomorrow, and switch back the day after that. Similar
transactions should be accounted for using the same accounting method over time. This creates
consistency in the financial information given to creditors and investors.
The Full Disclosure Principle. The full disclosure principle states that you should include in an
entity's financial statements all information that would affect a reader's understanding of those
statements. ... The nature and justification of a change in accounting principle.
f) List & identify formula for Net Present Value & Profitability Index (3M)

SET-3
Differentiate Producer Durable & Non Durable and Consumer Durable & Non Durable Goods
Demand?
Separate macroeconomic consumption demand functions are developed and tested for (1)
durable goods, (2) nondurable goods and (3) services. ... Demand for nondurable goods, such
as groceries and clothes, was driven by the same factors, except for new housing demand and
the exchange rate.

b) How demand is forecasted through method of least squares method? (4M)

What is the 'Least Squares Method'
The least squares method is a form of mathematical regression analysis that finds the line of best
fit for a dataset, providing a visual demonstration of the relationship between the data points.
Each point of data is representative of the relationship between a known independent variable
and an unknown dependent variable.
BREAKING DOWN 'Least Squares Method'
The least squares method provides the overall rationale for the placement of the line of best fit
among the data points being studied. The most common application of the least squares method,
referred to as linear or ordinary, aims to create a straight line that minimizes the sum of the
squares of the errors generated by the results of the associated equations, such as the squared
residuals resulting from differences in the observed value and the value anticipated based on the
model.
This method of regression analysis begins with a set of data points to be graphed. An analyst
using the least squares method will be seeking a line of best fit that explains the potential
relationship between an independent variable and a dependent variable. In regression analysis,
dependent variables are designated on the vertical Y axis and independent variables are
designated on the horizontal X axis. These designations will form the equation for the line of best
fit, which is determined from the least squares method.
Example of Least Squares Method
For example, an analyst may want to test the relationship between a companys stock returns and
the index returns for which the stock is a component. In this example, the analyst seeks to test the
dependence of the stock returns on the index returns. To do this, all of the returns are plotted on a
chart. The index returns are then designated as the independent variable, and the stock returns are
the dependent variable. The line of best fit provides the analyst, with coefficients explaining the
level of dependence.

c) Explain Returns to Scale with the help of graph? (4M)

The term returns to scale refers to the changes in output as all factors change by the same
proportion. Koutsoyiannis
Returns to scale are of the following three types:
1. Increasing Returns to scale.
2. Constant Returns to Scale
3.Decreasing Returns To Scale
d) List various features of Departmental Type of Undertaking. (4M)
Under departmental form of organisation, a public enterprise is run as a separate full-fledged
ministry or as a major sub-division of a department of the Government.
For example, the Indian Railways are managed by the Ministry of Railways. Post and Telegraph
services are run as a department, in the Ministry of Communication.
The Delhi Milk Scheme, All India Radio, Doordarshan are other examples of departmental
undertakings.

e) List & explain various functions of accounting (3M)

(a) Keeping Systematic Records:
As a language of business, accounting is to report the results of most business events. Hence, its
main function is to keep a systematic record of these events. This function embraces recording
transactions in journal and subsidiary books like cashbook, sales book etc., posting them to
ledger accounts and ultimately preparing the financial statements [final accounts].
(b) Communicating the Results:
The second main function of accounting is to communicate the financial facts of the enterprise to
the various interested parties like owners, investors, creditors, employees, government, and
research scholars, etc.
The purpose of this function is to enable these parties to have better understanding of the
business and take sound and realistic economic decisions.
(c) Meeting the Legal Requirements:
Accounting aims at fulfilling the legal requirements, especially of the tax authorities and
regulators of the business. It discharges this function in accordance with certain fundamental
truths and uniform enforcement of generally accepted accounting principles.
(d) Protecting the Properties of the Business:

f) List & explain various steps involved in Capital Budgeting (3M)

Identify and evaluate potential opportunities. The process begins by exploring available
opportunities. ...
Estimate operating and implementation costs. ...
Estimate cash flow or benefit. ...
Assess risk. ...
Implement.
SET-4
b) List qualitative methods of demand forecasting and explain opinion poll
methods?
Trend Analysis:
A method for forecasting sales data when a definite upward or downward pattern exists. Model
includes double exponential smoothing, regression & triple smoothing.
Seasonal Adjustment:
Seasonal models take into account the variation of demand from season to season. Adjustments
can be made to a baseline forecast to predict the impact of a seasonal demand.
Decomposition:
A method of forecasting where time series data are separated into up to three components:
trend, seasonal, and cyclical; where trend includes the general horizontal upward or downward
movement over time; seasonal includes a recurring demand pattern such as day of the week,
weekly, monthly, or quarterly; and cyclical includes any repeating, non seasonal pattern. A fourth
component is random, that is, data with no pattern. The new forecast is made by projecting the
patterns individually determined and then combining them.
Graphical Methods:
Plotting information in a graphical form. It is relatively easy to convert a spreadsheet into a
graph that conveys the information in a visual manner. Trends & patterns are easier to spot &
extrapolation of previous demand can be used to predict future demands.
Econometric Modeling:
A set of equations intended to be used simultaneously to capture the way in which dependent and
independent variables are interrelated.

(4M)
c) Identify properties of Iso-Product Curves with the help of graph? (4M)
An isoquants shows all those combinations of factors which produce same level of output. An
isoquants is also known as equal product curve or iso-product curve.

d) Differentiate Privatisation & Liberlisation concepts. (4M)

Privatization is an ongoing trend in many parts of the developed and developing world.
Proponents of privatization maintain that the competition in the private sector fosters more
efficient practices, which eventually yield better service and products, lower prices and less
corruption. On the other hand, critics of privatization argue that some services -- such as health
care, utilities, education and law enforcement -- should be in the public sector to enable greater
control and ensure more equitable access.
Liberalization (or liberalisation) of the economy means to free it from direct or physical
controls imposed by the government. This may be similar to deregulation.

e) List & explain different types of errors in preparation of trial balance. (3M)
Errors of Principle:
Errors of Omission:
Posting to Wrong Account:
Error of Amounts in Original Book:
Compensating Errors:

f) Nature of Capital Budgeting Project Decisions (3M)

(1) Cost of acquisition of permanent assets as land and building, plant and machinery, goodwill,
etc.
(2) Cost of addition, expansion, improvement or alteration in the fixed assets.
(3) Cost of replacement of permanent assets.
(4) Research and development project cost, etc.

SET-1
A)What is demand? And explain the types of demand. 3M
Definition: Demand in economics is how many goods and services are bought at various prices
during a certain period of time. Demand is the consumer's need or desire to own the product or
experience the service. It's constrained by the willingness and ability of the consumer to pay for
the good or service at the price offered.
i. Individual and Market Demand: ...
ii. Organization and Industry Demand: ...
iii. Autonomous and Derived Demand: ...
iv. Demand for Perishable and Durable Goods: ...
v. Short-term and Long-term Demand

c) What is Oligopoly market? And significance of kinked demand curve. 4M

a state of limited competition, in which a market is shared by a small number of producers or
sellers.

The Kinked-Demand curve theory is an economic theory regarding oligopoly and monopolistic
competition. Kinked demand was an initial attempt to explain sticky prices.
d) Explain the salient features and types of partnership. 4M
1. More Persons:

As against proprietorship, there should be at least two persons subject to a maximum of ten
persons for banking business and twenty for non-banking business to form a partnership firm.

2. Profit and Loss Sharing:

There is an agreement among the partners to share the profits earned and losses incurred in
partnership business.

3. Contractual Relationship:

Partnership is formed by an agreement-oral or written-among the partners.

4. Existence of Lawful Business:

Partnership is formed to carry on some lawful business and share its profits or losses. If the
purpose is to carry some charitable works, for example, it is not regarded as partnership.

e) Describe the importance of ratio analysis. 4M

1. Analyzing Financial Statements
Ratio analysis is an important technique of financial statement analysis. Accounting ratios are
useful for understanding the financial position of the company. Different users such as investors,
management. bankers and creditors use the ratio to analyze the financial situation of the
company for their decision making purpose.

2. Judging Efficiency
Accounting ratios are important for judging the company's efficiency in terms of its operations
and management. They help judge how well the company has been able to utilize its assets and
earn profits
f) Explain the meaning of capital. 3M

1. Wealth in the form of money or assets, taken as a sign of the financial strength of an
individual, organization, or nation, and assumed to be available for development or investment.
2. Accounting: Money invested in a business to generate income.
3. Economics: Factors of production that are used to create goods or services and are not
themselves in the pro

SET-2
a) Explain the law of demand and types of demand. 4M
A) Definition: The law of demand states that, all other things being equal, the quantity bought of
a good or service is a function of price. As long as nothing else changes, people will buy less of
something when its price rises. They'll buy more when its price falls
Individual and Market Demand: ...
ii. Organization and Industry Demand: ...
iii. Autonomous and Derived Demand: ...
iv. Demand for Perishable and Durable Goods: ...
v. Short-term and Long-term Demand:
B) Describe the salient features of Isoquants. 3M
1. The isoquant is downward sloping from left to right i.e. it is negatively sloped.

2. An isoquant is convex to the origin because of the diminishing marginal rate of technical
substitution. Marginal rate of technical substitution of factor X (capital) for factor Y
(labour) may be defined as the amount of factor Y (labour) which can be replaced by one
unit of factor X (capital), the level of output remaining unchanged.

MRTS C L = L/ C

3)Higher the isoquant, higher will be the level of output produced. A set of isoquants which
represents different levels of output is called 'isoquant map'. In the isoquant map, the isoquants
on the right side represent higher levels of output and vice versa.

c) Explain the conditions of monopoly. 4M

1. Patents: If a firm holds a patent on a production process, it can legally exclude other
firms from using that process for a number of years. If there are no other production
processes that can be used, the firm that holds the patent will have a monopoly.
2. Large startup costs: In some markets, firms will face large startup costsfor example,
the cost of building a new production facility. If these startup costs are large enough,
most firms will be discouraged from entering the market.
 3. Limited access to resources: A monopolistic market structure is likely to arise when
access to resources needed for production is limited. The market for diamonds, for
example, is dominated by a single firm that owns most of the world's diamond mines.

d) Describe the merits and demerits of sole trader. 4M

MERITS
1. Easy to commence and dissolve
2. Quick decision
3. Secrecy
4. Flexibility
5. Personal supervision and control
6. Direct motivation
7. Easy to get loan
8. Economy
9. Social benefits

Demerits
1. Sole proprietorship has limited capital

2. Sole proprietor only uses his ideas and innovation capacity. So there is limited managerial
ability

3. Sole proprietor must work more to earn more profit .higher profit generation is important. So,
there is dull and monotonous wok.

4. Death of sole proprietor causes death of sole proprietorship.

5. There is no specialization in decision taking. So there can be chances of taking wrong

decisions

6. There is low investment resulting in limited areas of operation.

e) Explain the double entry system. 4M

The double entry system of accounting or bookkeeping means that every business transaction
will involve two accounts (or more). For example, when a company borrows money from its
bank, the company's Cash account will increase and its liability account Loans Payable will
increase.
f) What is Capitalization

Capitalization, in accounting, is when the costs to acquire an asset are expensed over the life of
that asset rather than in the period it was incurred. In finance, capitalization is the sum of a
corporation's stock, long-term debt and retained earnings.
SET-3
Define Managerial Economics. 3M

Managerial economics is the "application of the economic concepts and economic analysis to
the problems of formulating rational managerial decisions". ... As such, it bridges economic
theory and economics in practice. It draws heavily from quantitative techniques such as
regression analysis, correlation and calculu
d) Merits and demerits of partnership. 4M
Advantages of Partnership

Capital Due to the nature of the business, the partners will fund the business with start
up capital. This means that the more partners there are, the more money they can put into
the business, which will allow better flexibility and more potential for growth. It also
means more potential profit, which will be equally shared between the partners.
Flexibility A partnership is generally easier to form, manage and run. They are less
strictly regulated than companies, in terms of the laws governing the formation and
because the partners have the only say in the way the business is run (without
interference by shareholders) they are far more flexible in terms of management, as long
as all the partners can agree.

Disadvantages of Partnership

Liability Ordinary Partnerships are subject to unlimited liability, which means that
each of the partners shares the liability and financial risks of the business. Which can be
off putting for some people. This can be countered by the formation of a limited liability
partnership, which benefits from the advantages of limited liability granted to limited
companies, while still taking advantage of the flexibility of the partnership model.
Taxation One of the major disadvantages of partnership, taxation laws mean that
partners must pay tax in the same way as sole traders, each submitting a self assessment
tax return each year.
Profit Sharing Partners share the profits equally. This can lead to inconsistency where
one or more partners arent putting a fair share of effort into the running or management
of the business, but still reaping the rewards.

e) Importance of ratio analysis. 4M

The Importance Of Ratio Analysis In Business Management. ... Ratios, on the one hand, help
greatly in summarizing the large amount of financial data by making the interpretation of
financial statements easier; they enable to make qualitative judgment about a business firm's
financial performance on the other.

f) Explain the need for capital budgeting.

Capital budgeting has long-term implications:
The most significant reason for which capital budgeting decisions are taken is that it has long-
term implications, i.e. its effects will extend into the future, and will have to be endured for a
longer period than the consequences of current operating expenditure. Because, a proper
investment decision can yield spectacular returns, whereas a wrong investment decision can
endanger the very survival of the firm.
That is why, it may be stated that the capital budgeting decisions determine the future destiny of
the firm. Moreover, it also changes the risk complexion of the enterprise. When the average
benefits of the firm increase as a result of an investment proposal which may cause frequent
fluctuations in its earnings that will become a risky situation.

(b) Capital budgeting requires large amount of funds:

Capital investment decisions require large amount of funds which the majority of the firms
cannot provide since they have scarce capital resources. As a result, the investment decisions
must be thoughtful, wise and correct. Because, a wrong/incorrect decision would result in losses
and the same prevents the firm from earning profits

SET-4
b) Explicit Vs. Implicit costs. 4M
Explicit describes something that is plainly and clearly stated, something that is communicated in
a fashion that leaves no room for interpretation or confusion. Explicit may also refer to
something that is sexually graphic, leaving nothing to implication or the imagination. Explicit
may also be used as a noun to indicate the end of a manuscript, it was often used by medieval
scribes. The word explicit is derived from the Latin word explicitus which means unobstructed,
related words are explicitly and explicitness.

Implicit describes something that is not clearly expressed, something expressed indirectly,
something communicated in a fashion that is implied. Implicit may also refer to something
inherent, something that is inextricably connected with another thing. Thirdly, implicit may
describes something that is without question or absolute. The word implicit is derived from the
Latin word implicitus, which means confused or entangled. Related words are implicitly and
implicitness.