Course No

: ECON F211

Course Title : Principles of Economics

CLOSED BOOK (MCQ)

Questio

Answer

Questio

Answer

Question

Answer

Question

Answer

n
1
2
3
4
5

D
D
C
D
B

n
6
7
8
9
10

B
D
C
D
C

11
12
13
14
15

B
C
B
B
D

16
17
18
19
20

D
B
A
B
A

OPEN BOOK
Q1. (a)
Total Fixed Cost
Normal return of the investment:
1,00,000
Rent and insurance contarct:
10,000
TFC = 1,10,000

Total Variable Cost

Wage per annum
: 2,40,000
Material Cost per annum:
3,60,000
TVC = 6,00,000

Total Cost
Total Fixed Cost : 1,10,000
Total Variable Cost: 6,00,000

Total

TC = 7,10,000

Revenue: = 10 x 1, 00,000 =10, 00,000 and Total Cost: 7, 10,000. Hence, Profit: 2, 90,000
(b)
Operate With price = Rs.7.00
Total Revenue : 7,00,000
Total Cost
: 7,10,000
Profit/ Loss:
(-) 10,000
As the loss is less than fixed Cost, hence the enterprise will not shut down it operation.
Or, TR TVC = 1, 00,000 which is positive, the firm should continue to operate.

[4marks]

[3marks]

Q2. (a) P53Q.SettingMRMC,findtheoptimalquantity: orQ24andP$29.

Assumingfixedcostsarezero,profitsareequalto TRTC(29)(24)(5)(24)$576.[2+2]
(b) Whenthesecondfirmenters,pricecanbewrittenasafunctionoftheoutputofbothfirms:
P53Q1Q2.So,TR1=PQ1=53Q1Q12Q1Q2
andMR1=532Q1Q2
SettingMR1=MC=5,
Wegetreactioncurveoffirm1asQ1=240.5Q2andsimilarly
Q
Q2 24 1
2
Becausetheproblemissymmetric,thereactionfunctionforFirm2is
.
Q1
1
Q1 24 24 , or Q1 16.
4
2
2
marks
SolvingbysettingQ1=Q2or
HenceQ1=Q216.
AndP531616$21.
ProfitforFirm1istherefore: iPQiC(Qi)i(21)(16)(5)(16)$256.
2+1+1
Firm2sprofitisthesame=256

marks

c)Ifthefirmswereoperatingunderperfectlycompetitivemarketstructure,thenP=MC.
Thus,53Q=5orQ=48.ThisgivesP=5.
Andtheamountofprofit=0.
[2+2]
Q3. (a) With price discrimination, P1 = 63 - 4Q1, P2 = 105 5Q2 and
P3 = 75 -6Q3, and MC = 5.
Equalizing MR1= MC,
MR2= MC and MR3= MC
And solving for quantity in each sub market we get, Q1 = 7.25, Q2 = 10 and Q3 = 5.83 (or 5.82)

And accordingly P1 = 34, P2 =55 and P3 = 39.93 (or 40)

Profit = P1Q1 + P1Q1 + P1Q1 TC = 246.5 + 550 + 232.40 135.35 = 893.55

[8 marks]

(b)Without price discrimination, Q = Q1 + Q2 + Q3 = 49.25 0.62P = 23.07

So at Q = 23.07 we get P = 42.5
Profit = 980.475 135.35 = 845.125

[6 marks]

Q4.(a) By inspecting each of the four combinations, we find that (First for network 1 and Second for network 2)
is the only Nash equilibrium, yielding a payoff of (23, 20)
[3 marks]
(b) The Maximin equilibrium is (First, First)withapayoffof(18,18).
[3 marks]
Q5.

5+5
marks

Disposable personal income

National Income
Plus Dividends minus corporate
profits
Less personal income taxes
Disposable personal income

379
347
-30
317

Q6.
Present Value
1
57,522
.12
66,371
.68
66,371
.68

2
19,578
.67
66,567
.47
3,915.
73

3
17,326
.25

4
39,865
.72

0.00

0.00
58,265
.28

0.00

Choose project A. Maximum NPV

Present
Net Present
Value
Value
134,292.
76
34,292.76
132,939.
15
32,939.15
128,552.
69
28,552.69

2 + 2 + 2 marks

[2 marks]

2+2
mark
s

Q7. a.

RBI
Assets
Liabilities
Securities
1200 Reserves
900
Gold
800 Assets
Currency
1100 Liabiliti
2000
2000 es
Reserves
900
Deposits
Loan
6300
b.
7200
MM=1/RRR =8 , hence
deposits will increase by
Commercial Banks by the same amount
RBI
Commercial
Assets
Securities
Gold
Loan to
CB

Commercial Banks

7200
7200

Assets
Liabilities
Reserves
Liabilities
1020
Deposits
1200
LoanReserves
7260 1020
Loan from RBI
800
Currency
8280 1100
120
2120

2mar
ks
RRR=(900)*100/7200=12.5%
when banks borrow 120,
2
8*120=960 and loans will also increase

marks
Banks
8160
120
8280

2
marks

2120

[1 mark]

M1 (before)= Deposits+ Currency=7200+1100=8300

[1 mark]

M1(after)= Deposits+ Currency=8160+1100=9260 (it has increased)

c. New Deposit= 8160 - 15%of 8160 = 8160 1224 = 6936
Now the new RRR to support deposits of 6936= 1020/6936 =14.70% and new MM = 6.80
RBI
Assets
Securities
Gold
Loan to CB

Assets
Liabilities
Liabilities
1200Reserves
Reserves10201020 Deposits
800 Loan
Currency 60361100 Loan from RBI
7056
120
2120
2120

Commercial Banks

3
marks

6936
120
7056

M1= Deposits+ Currency= 6936+1100=8036 (it has decreased)

*******END*******

3
mark
[1 mark]