Business Economics Question Paper

Paler has RSI 1 million, which she must allocate between Indian government securities and common stocks. If she invests it all in the Indian overspent securities, she will receive a return of 5%, and there is no risk. If she invests it all in common stock, she expects to receive a return of 10%, and there is a considerable risk. If she invests half in Indian government securities and half in common stocks, she expects to receive a return of 7. 5%, and there is some risk.

Investors differ in how much risk they will accept in order to obtain a higher expected return I) Capture this situation in the indifference curve diagram and show that the positively sloped indifference curves (unusual) reflect the satisfaction levels of an investor from expected return and extent of risk from all possible allocations of RSI 1 million between these two types of securities. I') Why do these indifference curves and constraint slope upward to the right? How should this investor allocate RSI 1 million between Indian government securities and common stocks? Q I(b) Sleek Furniture produces 1,000 wood cabinets and 500 wood desks per year, the total cost being RSI 15,000. If the firm produced 1,000 wood cabinets only, the cost would be RSI 12,000. If the firm produced 500 wood desks only, the cost would be RSI 8,000. I) Calculate the degree of economies of scope. ') Why do economies of scope exist and what is their significance in managerial decision-making? 5 Q I(c) In late 1991, two firms, Delta Airlines and the Trump Shuttle, provided air shuttle service between New York and Boston or Washington.

The one-way price charged by both firms was $142 on weekdays and $92 on weekends, with lower off- peak advance-purchase fares. In September 1991, Delta increased the per-trip shuttle mileage given to members of the Delta frequent-flier program from 1,000 to 2,000 miles, even though actual mileage from New York to either Boston or Washington is about 200 miles. Moreover, Delta also offered an extra 1,000 miles to frequent fliers who made a round trip on the same day, raising a possible days total miles. Almost simultaneously, Trump changed the deterrent-title mileage it gave to shuttle passengers.

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It also participated in the One Pass frequent flier program with Continental Airlines and some foreign carriers. I) In what model of the market these two airlines are working and why? I') Whether Trump took the right decision or not? Iii) What alternative pricing strategies you can suggest and why? 10 Q 2(a) Managers must continually make comparisons among alternative systems of reduction. Should another replace one type of plant? How does your plant stack up against your competitor's? Breakable Analysis can be extended to help make such comparisons more effective.

The company grew rapidly during the asses and continued to gain wider hospital acceptance as an alternative to reusable syringe as the use of reusable syringe leads to spread of infections and diseases. However, price competition in the medical supplies industry is growing rapidly in the increasing price-conscious new millennium. During the past year, Surgical Systems Limited sold 6 million units at a price of RSI 14. 0 per unit, for total revenue of RSI 87 million. During the current year, Surgical Systems Limited unit sales have fallen from 6 million units to 3. 6 million units following a competitor's price cut from RSI 13. 5 to RSI 10. 85 per unit. Calculate the arc cross-price elasticity of demand for Surgical Systems Limited product. Ii) Surgical System's director of marketing projects that unit sales will recover from 3. 6 million units to 4. 8 million units if Surgical Systems Limited reduces its own price from RSI 14. 50 to RSI 13. 50 per unit. Calculate Surgical Systems' implied arc price elasticity of demand. Ii) Assuming the same implied arc price elasticity of demand calculated in part (it) determine the further price reduction necessary for Surgical Systems to fully recover lost sales (I. . Regain a volume of 6 million units). 10 Q 3(a) The scientists to National Research Institute to Farm Animals determine the following combinations of hay and grain consumption per lamb will result in a 25 pound gain on a lamb: I Pounds of hay 40 112 155 150 115 110 160 114 18 124 118 119 13 170 113 19 132 125 1 18 14 130 1 17 15 II | 48 1 16 16 I) Given income of INNER 65, how much of each good should the consumer purchase to maximize utility? T) Suppose income falls to INNER 43 with the same set of prices, what combination of goods will the consumer choose? Ii) Let income fall to 38: let price of X rise to 5: while the price of Y and Z remain at 3 and 5. How does the consumer allocate income now? What would you say if the consumer maintained that X is not purchased because he or she could no longer afford it? PIDGIN 13th BATCH Date: 21 September 2006 Instructions: Attempt all questions. All questions carry equal marks. Start each answer on a fresh page. Parts of the question must be answered together. Draw appropriate tables, diagrams, and equations to support your answers. Highlight your main answer's. Assume suitable assumption wherever necessary.

Q 1 (a) Athletic clubs, vacation resorts, golf courses and a wide variety of "membership organization" offer goods and services using two-part pricing. Considering that they enjoy monopolistic conditions, and assume that an individual avid golfer's demand is written as: p=$100-$SQ Where P is the price to single round to gold and Q is the number to rounds played during a given year. Also assume that the marginal cost of a round of golf is $20. Calculate profit maximizing or loss minimizing quantity, output and profit or loss for he monopolist and consumer surplus for the golfer. Q I(b) In continuation of question number 1 (a), as an alternative to charging a single unit price per round, consider the profit that could be earned using two-part pricing scheme. The golf course would choose to charge the price that equals marginal cost. Estimate how much quantity would be sold at this price, and how much membership fees will be kept by the monopolist to extract consumer surplus? 5 Q I(c) The management of the Mini Mill Steel Company estimated the following elasticity for a special type of steel: Pep (price elasticity) = 2, Ii (income elasticity) = 1, ND Ex. (cross price elasticity) = 1. , where x refers to steel and y to aluminum. Next year the firm would like to increase the price of the steel it sells by 6 per cent. The management forecasted that income will rise by 4 per cent next year and that the price of aluminum will fall by 2 per cent. (I) If the sales this year are 1,200 tons of steel, how many tons can the firm expect to sell next year? (it) By what percentage must the firm change the price of steel to keep its sales at 1,200 tons next year? 5 Q 1 (d) Draw a neat and self explanatory diagram (not necessarily to the scale) to depict the following situation:

For years, following the Arab oil crisis of 1973-74, the US government considering increasing the federal tax on gasoline. The important goal of higher gasoline taxes has been to discourage the consumption of gasoline (and not to raise revenues), the government has also considered ways of passing the resulting income back to consumers. Suppose that the relevant price elasticity of demand is about -0. 5 and low income consumer uses about 1200 gallons of gasoline a year, gasoline costs $1 per gallon, and that the consumer's annual income is $9000.

If the tax is imposed as 50 cents per gallon, show that the consumer is now worse off. The rebate programmer, however, partially counters this effect. Suppose that the tax revenue per person is about $450 so that each consumer receives a $450 rebate. How does this increased income affect gasoline consumption? Q 2(a) The production function for the personal computers of DISK Ltd. Is given by Q = 10 OK. LO. 5, where Q is the number of computers produced per day, K is the hours of machine time, and L is the hours of labor input. DISK Ltd. 's competitor, FLOPPY Ltd. s using the production attention 4 (I) It boot companies use the same amounts of capital and labor, which will generate more output? It) Assume that capital is limited to 9 machine hours, but labor is unlimited in supply. In which company is the marginal product of labor is greater? (iii) Do the production functions say anything about returns to scale? 5 Q 2(b) Two firms in the same industry sell their product at RSI. 10 per unit. Firm A has ETC = RSI 100 and PVC= RSI. 6, while the firm B has ETC = RSI. 300 and PVC = RSI. 3. 33. (I) Determine the breakable output of each firm.

Why is the breakable output of the second firm larger than that of the first firm? (it) Find the degree of operating leverage for each firm at Q = 60 and at Q = 70. Why is the degree of operating leverage greater for the second than for the first firm? Why is the degree of operating leverage greater at Q = 60 than at Q = 70? 5 Q 2(c) The cost of attending an MBA programmer for one year is RSI. 1,60, 000 for tuition, RSI. 20,000 for the hostel room, RSI. 12,000 for meals, and RSI. 5000 for books and supplies. The student could also have earned RSI. , 00,000 by getting a Job instead of going to college and 10 per cent interest on expenses he or she incurs at the beginning of the year. Calculate the explicit, implicit, and the total economic cost of attending college. 5 Q 2(d) For the following total-profit function of a firm: n = 144 x- EX. -XX- - 35 Where n is profit and X and Y are two products. (I) Determine the level of output of each commodity at which the firm maximizes its total profit; (ii)Determine the value of the maximum amount of the total profit of the firm. 5 Q 3(a) The indifference curve analysis is useful in understanding the consumer's behavior.

Also, the analysis can be used to optimize the satisfaction level of a manager. Beside other things, a manager gets higher satisfaction level when his perks are increased due to increase in profits of the company or sales. Using profit ND indifference curves, graphically present the optimization of satisfaction level of a manager in three different situations when the manager: 1 . Values sales and profits both, 2. Values sales only, 3. Values profit only 5 Q 3(b) The Iambi National Bank received 30,000 inquiries following the latest advertising describing its 30-month balance sheets in the Iambi WAP, a local newspaper.

The most recent ad in a similar advertising campaign in Maharajah's Business, a regional business magazine, generated 10,000 inquiries. Each newspaper ad costs RSI. 5,000, whereas each magazine ad costs RSI. 1,250. (I) Assuming the additional ads would generate similar response rates, is the bank running an optimal mix of newspaper and magazine ads? Why or why not? (it) Holding all else equal, how many enquiries must a newspaper or magazine ad attract tort the current advertising mix to be optimal? 5 Q 3(c) A sales tax of Re 1 per unit of output is placed on one firm whose product sells for RSI. In a perfectly competitive industry. (I) Show the affect of this tax on the cost curves of this firm. (ii)What will happen to the firm's price, output and profit in the short run? (iii)Whether firm shuts down in the long run? Clearly indicate the condition for hutting down the production process in the graph. Q 3(d) Movie Attendance dropped 8 per cent as ticket prices rose a little more than 5 per cent. What is the price elasticity of demand for movie tickets? Could price elasticity be somewhat overestimated from these figures?

That is, could other things have changed, accounting for some of the decline in attendance? 5 PIDGIN 14th and PIDGIN 2nd BATCH Date: 19 September 2006 Time: 2. 00 to 5. Mom Instructions: Attempt all self explanatory questions. Start each answer on a fresh page. Parts of the question must be answered together. Draw appropriate tables, isograms, and equations to support your answers. Highlight your main answer's. Assume suitable assumption or missing data wherever necessary. Q I(a) The manager Koran Wangling notes a 2% increase in weekly sales following a 1% price discount on The Kingfisher fishing nets.

What is the optimal retail price for The Kingfisher fishing nets if the firm's relevant marginal cost is RSI. 25? Suppose that the marginal cost is reduced to RSI. 24, what will be the new optimal retail price? Q I(b) When the price of gasoline in Italy is $5 per gallon, AIBO consumes 1,000 gallons per year. The price rises to $5. 50 and, to offset the harm to AIBO, the Italian overspent gives him a cash transfer of $500 a year. Using indifference curve analysis, show that whether AIBO will be better or worse off after the price rise plus cash transfer? What will happen to gasoline consumption? Q I(c) Evergreen Pool Services provides weekly swimming pool maintenance in Iambi. Dozens of firms provide this standardized service at a contract of six months at the price RSI. 115 per day. Evergreen Pool Services has fixed cost of RSI. 3,500 and the following marginal cost: SCM = 125 - 0. 42 Q + 0. 0021Q2 Where SCM is measured in RSI and Q is the number of pool serviced each summer. ) Find out profit maximizing or loss minimizing output level for Evergreen. 'I) How much Profit or loss can the manager of Evergreen expect to earn? Iii) Should the manager continue to operate or shut down? V) Suppose Evergreen fixed cost rises to RSI. 4000, how does this affect the optimal level of output? 8 Q 2(a) Newt Electronics has expanded its scale of operation. It would like to know its progress in the long-run. It incurs fixed cost of RSI 100,000 per annum, average variable cost RSI. 125 and produces 1200 units. To produce 1500 units it expects to incur fixed cost RSI 125,000, and average variable cost RSI. 130. Newt Electronics would like to know its scale economies. Help it out through calculating cost elasticity and interpreting the results to its manager. Q 2(b) Currently the social security payroll tax in the United States is evenly divided between employers and employees. Employers must pay the government a tax of 6. 2% of the wages they pay, and employees must pay 6. 2% of the wages they receive. Suppose the tax was changed so that the employers paid the full 12. 4% and employees paid nothing, would employers or employees be better or worse off? Use demand and supply analysis for factor market to answer this question. Q 2(c) Untouchable Package Service (UPS) offers overnight package delivery to Indian business customers.

UPS has recently decided to expand its facilities to better satisfy current and projected demand. Current volume totals 2 million packages per week at a price of RSI. 12 each, and average variable costs are constant at all output levels. Fixed costs are RSI. 3 million per week, and profit contribution averages one-third of revenues on each delivery. After completion of the expansion project, fixed cost will double, but variable cost will decline by 25%. (I) Calculate the change in Pup's weekly breakable output level that is due to expansion.

Assuming that volume remains at 2 million packages per week, calculate the change in the degree to operating leverage that is due to expansion. (iii) Again assuming that volume remains at 2 million packages per week, what is the effect of expansion on weekly profit? 8 Q 3(a) The Mortem Company assembles garments entirely by hand even though a textile machine exists that can assemble garments faster than a human can. Workers costs RSI. 50 per day, and each additional laborers can produce 200 more units per day. Installation of the first textile machine on the assembly line will increase output by 1,800 units daily.

Currently the firm assembles 5,400 units per day. (I) The financial analysis department at Mortem estimates that the price of a textile machine is RSI. 600 per day. Can management reduce the cost of assembling 5,400 units per day by purchasing a textile machine and using less labor? Why or why not? (it) The textile workers of India plan to go on strike for higher wages. Management predicts that if the strike is successful, how would this affect the decision in part (I) to purchase a textile machine? Explain. 6 Q 3(b) Ironsides Industries is a leading manufacturer of tufted carpeting under the Ironsides brand.

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