Questions

Q. (a) Define capital budgeting. What are the four main categories of capital budgeting
1
projects? Briefly explain the process of capital budgeting
(b) Net Cash Flows (CFt) for Projects A and B are given below
Year
0
1
2
3
4
5
Projects
-10000
7500
2000
3000
1000
800
A
Projects b -10000
4000
4000
4000
4000
4000

Q.
2

Q.
3

Q.
4

Find out the pay back period and NPV of both projects.
(a) In contrast to perfect and monopolistic competition, oligopolistic market
structures are characterized by interdependence in pricing and output decisions.
Explain.
(b) The director of Occidentals athletic department claims that the increase in
enrolment resulted from the football teams NCAA Division I national
championship. Is this claim reasonable? How would it show up in the new
demand equation? The market demand and supply equations for a commodity are
QD = 50 - 10P
QS = 20 + 2.5P
a. What is the equilibrium price and equilibrium quantity?
b. Suppose the government imposes a price ceiling on the commodity of $3.00
and demand increases to QD = 75 - 10P.What is the impact on the market of
the governments action?
c. In a single diagram, illustrate your answers to parts a and b.
(a) Monopolistically competitive firms are similar to monopolies in that they are able
to earn economic profits in the long run. Do you agree with this statement? If not,
then why not?
(b) Suppose that a firm in a monopolistically competitive industry faces the following
demand equation for its product: The firms total cost equation is
Q = 9 - 0.1P
TC = 75 -Q+ 3Q2
I.
Give the firms short-run profit-maximizing price and output.
II.
b. Verify that the firm is earning a positive economic profit. What is the
relationship between price and average total cost?
III.
Suppose that the existence of positive economic profits attracts new firms into
the industry. As a result, the new demand curve facing the firm is
i. Q = 3.891 - 0.04545P
IV. Is this firm in long-run monopolistically competitive equilibrium?
(a) The market equation for a product sold by a monopolist is The total cost equation
of the firm is
Q = 100 - 4P
The total cost equation of the firm is
TC = 500 + 10Q + 0.5Q2
I.
What are the profit-maximizing price and quantity?
II.
What is the firms maximum profit?
III.
C What is the quantity where total revenue is maximum
IV. D Calculate monopoly power as per learner index
Page 1 of 2

(8)
(10)

(8)

(2+3+
3)

(8)

(8)

(8)

Q.
5

Q.
6

(b) What is national income? What are the different methods for measuring national
income in India? Distinguish between GDP and GNP
(a) What is inflation? What are the main causes of inflation? Discuss the fiscal and
monetary measures to control inflation.
(b) What do you mean by capital market? Distinguish between primary market and
secondary market.

(8)

(c) A firms books of accounts provide the following data regarding sales and cost:
Estimated Sales are 25,000 units
Estimated Cost:
Material cost (variable)
Rs 6.00
Labour Cost (variable)
Rs 4.00
Factory Expenses (variable)
Rs 18,000 per annum
Legal and Audit Charges (fixed)
Rs 7,000 per annum
Selling Expenses
(fixed)
Rs. 5000
Profit is 20% on cost , You are to calculate:
I.
Selling Price of the Product.
II.
Breakeven sales in terms of Rupees and units.
III.
If company plan to sell 30,000 units than what will be the profit or loss

(6)

(a) Only implicit costs are opportunity costs. Do you agree with this statement? If
not, then why not?

(5)

(b) The long-run average total cost equation for a perfectly competitive firm is
LRATC = 620 - 5Q+ 0.025Q2
a. Determine the minimum efficient scale of production.
b. Calculate total cost at the minimum efficient scale of production.
c. If the total level of output in the industry is 50,000 units, how many firms can
profitably operate in this industry?
(c) Blue Dot Marketing Inc., has a short run production function where the only
variable input is labor; Q = 9L2 0.5L3. The price of the output produced is Rs.4 per
unit and the market going wage rate is Rs.120. what is optimum input of labor for the
firm?

(6)

Page 2 of 2

(6)
(6)

(5)