Final Assessment Test - November 2016

Course: CLE312 - Economics and Business Finance for Civil Engineers

Class NBR(s):3331 Slot: G2+TG2
Time: Three Hours Max. Marks: 100

General Instructions : Assume suitable data (if necessary).

Answer any TEN Questions

(10 X 10 = 100 Marks)

1. When a good is limited, some means must be found to ration the scarce commodity. Some examples of
rationing devices are auctions, ration coupons and first come first served systems. What are the strengths
of each? Explain carefully in what sense a market mechanism ‘rations’ scarce goods and services in Indian
context.
2. Consider the following cases of government intervention: regulations to limit air pollution, income
support for the poor, and price regulation of a telephone monopoly. For each case a) explain the market
failure, b) describe the government intervention to treat the problem.
3. ‘A good crop yield will normally minimize the income of agriculturalists’. Illustrate this proposition using a
supply and demand diagram.
4. Assume that a competitive firm’s marginal cost of producing output q is given by MC (q) = 3+2q and the
market price for that product is $9.
a) What level of output will the firm produce?
b) What is the firm’s producer surplus (draw a rough diagram)?
c) Suppose that the AVC of the firm is given as AVC(q) = 3+q with the fixed cost as $3, will the firm
be earning positive, negative or zero profit in the short run?
5. The cost function of ABC company is given as C(q) = 4q2+16.
Find a) the variable cost, fixed cost, average cost, and average fixed cost. Hint: MC = 8q.
b) Show the average cost, marginal cost and the average variable cost curves on a graph.
c) Find the output that minimizes average cost?
6. Shown below is an extract from the stores ledger card for material X.
Date Qty Receipts Total Qty Issue Total Qty Balance Total
values (Rs.) Value (Rs.) value (Rs.)
(Rs.) (Rs.) (Rs.)
April 1 8 84.40
April 12 10 10.50 105.00 18 189.40
April 15 12 10.29 123.48 30 312.88
April 20 4
April 21 15
You are required to value the issues of April 20 and 21 using each of FIFO, LIFO and periodic weighted
average methods and under each of the above three methods, show the value of the closing stock.

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7. When he was running for Vice President, Al Gore spoke of the need to recognize the potentially
catastrophic implications of unchecked economic growth, pointing to environmental issues like the
Antarctic ozone hole and global warming. Then-President George H.W. Bush derided Gore, saying, ‘You
know why I call him Ozone Man? This guy is so far off in environmental extreme’.
The above discussion insists on environmental economics. You are asked to explore the nature of
environmental externalities, describe why they produce economic inefficiencies and analyse potential
remedies.

8. List the distinguishing features of perfect and imperfect competition. What are the main varieties of
imperfect competition? In which category would you place General Motors and your local Pizza
restaurant?
9. Arrive the profit maximizing conditions for the following monopoly data:

Quantity 0 1 2 3 4 5 6 7 8

Price (Rs) 200 180 160 140 120 100 80 60 40

Total Cost 145 175 200 220 250 300 370 460 570

a) Calculate all kinds of costs and revenue

b) Draw graph for all costs & revenue. Show that the slopes of TC and TR are parallel and slope of
maximum profit point is zero.

10. Discuss the price output relationship for the monopolistically competitive firms in short and long run with
diagram.

11. The Creative Publishing Company (CPC) is a coupon book publisher with markets in several southeastern
states. CPC coupon books are either sold directly to the public, sold through religious and other charitable
organizations, or given away as promotional items. Operating experience during the past year suggests
the following demand function for CPC’s coupon books:
Q = 5,000 - 4,000P + 0.02Pop + 0.375I + 1.5A,
where Q is quantity, P is price (Rs), P op is population, I is disposable income per household (Rs), and A is
advertising expenditures (Rs).
i) Determine the demand faced by CPC in a typical market in which P = Rs. 10, Pop = 1,000,000 persons,
I = Rs 40,000, and A = Rs 10,000.
ii) Calculate the level of demand if CPC increases annual advertising expenditures from Rs. 10,000 to
Rs. 15,000.

12. Illustrate graphically about the circular flows of income and expenditure in a three sector model.

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