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Exam June 2008, questions

Quantitative Analysis for Business and Economics (University of New South Wales)

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The University of New South Wales

School of Economics
ECON1202/2291 QUANTITATIVE METHODS A

FINAL EXAMINATION

June 2008

1. TarAL TIME ALLOWED: ~ HOURS.

2. READING TIME: 10 MINUTES.

3. TarAL NUMBER OF QUESTIONS: Q.

4. TarAL MARKS FOR THIS EXAM: 60 (10 MARKS FOR EACH QUESTION).

5. ATTEMPT ALL SIX QUESTIONS.

6. START THE ANSWER TO EACH QUESTION ON A NEW PAGE.

7. CANDIDATES MAY BRING A CALCULATOR TO THE EXAMINATION. IT SHOULD

Nar HAVE AN ALPHABETICAL KEYBOARD, IT SHOULD NOT BE GRAPHIC,
PROGRAMMABLE OR FINANCIAL CALCULATOR. HAND HELD COMPUTERS
ARE NOT ALLOWED.

8. THIS EXAMINATION PAPER HAS ~ PAGES.

9. A LIST OF USEFUL FORMULAE IS PROVIDED ON PAGES §. AND £!.

10. GRAPH PAPER IS PROVIDED.

11. ALL WORKING MUST BE SHOWN. ALTHOUGH ROUNDING ERRORS WILL Nar
BE PENALIZED, YOU SHOULD ONLY ROUND YOUR ANSWER IN THE FINAL
STEP OF YOUR CALCULATIONS.

12. THIS PAPER MAY BE RETAINED BY THE CANDIDATE.

ALL ANSWERS MUST BE WRITTEN IN BLACK OR BLUE INK. EXCEPT WHERE

THEY ARE EXPRESSLY REQUIRED, PENCILS MAY BE USED ONLY FOR DRAWING,
SKETCHING OR GRAPHICAL WORK.

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Question 1: [10 marks]

You have just finished your degree and landed a well paid job in a consulting firm. To
reward your achievement, you decide to buy your dream car which costs $80, 000. The
car dealer requires an immediate deposit of $10,000 and offers you the following two
financing options for the rest of the car cost:

Option A: Pay nothing for the first two years and then $1000 monthly repayments at
rate 12% per annum compounded daily.

Option B: Start monthly repayments of 1000 immediately at 12% per annum rate com-
pounded continuously.

(a) How many years will it take to repay the loan for each of the proposed options?
[3.5 marks]
(b) Which option will you take if your goal is to lower the debt total financial cost?
[1 marks]

After 6 years, a new model is out and your car's performance no longer meets your stan-
dards. You decide to sell the car and buy a new one. Given this is a good car, you decide
to use the constant percentage method (CPM) with annual depreciation rate of d = 12%.
Assume a useful life of 20 years and a scrap value of $10, 000.

(c) What is the book value of the car after 6 years?

[1.5 marks]

You decide to sell the car at the best offered price which was equal to its book value.
You meet an old friend from university years and he tells you that you should have used
the sinking fund depreciation method (SFM) at the same rate offered by the car dealer in
Option B. If he is right and if the best price is always equal to the book value,

(d) Compute the book value of your car after 6 years using the SFM method.
[2.5 marks]
(e) What is the financial loss you have incurred by selling at the the CPM book value
instead of the SFM book value?
[1.5 marks]

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Question 2: [10 marks]

Answer all three parts of this question

(a) In a group of 40 people at a party, what is the probability of at least two people
having the same birthday. That is those who are born on the same day of the same
month but not necessarily the same year. Assume 365 days in a year and no twins
are present at the party.
[3 marks]

(b) Bowl Cl contains 3 red and 7 blue chips and bowl C2 contains 8 red and 2 blue
chips. All chips are identical in size and shape. A die is cast and bowl Cl is selected
if five or six spots show on the side that is up; otherwise, bowl C 2 is selected. The
selected bowl is handed to another person and one chip is taken at random. Suppose
that the selected chip is red, what is the probability the selected bowl was Cl?
[3.5 marks]

(c) A loan is to be repaid with an amount of $10000 to be paid in 6 months time along
with a final payment of $40000 in 12 months time. Instead, I choose to repay the
loan with five payments. The second and third payments are of equal value, the
fourth and fifth payments are of equal value and double the value of the second and
third payments. The first payment is exactly half way between the values of the
second and fourth payments.
Payments are to be made immediately and at the end of the 4t h, 6t h, 8th and 10 th
months. Find the value of the 1st repayment if interest is compounded continuously
at a rate of 6% is per annum.
[3.5 marks]

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Question 3: [10 marks]

Answer both parts of this question.

(a) In accordance with market research, information diffuses through an adult popula-
tion of fixed size P at a time rate proportional to the number of people who have not
heard the news. Let N (t) be the number of people who have heard the news after t
days, then the information diffuses following the differential equation,

d:; = k(P - N(t))

(i) At t = 0 no one has heard the news yet and therefore N(O) = O. Find the
expression of N(t), the number of people who have heard the news at after t
days.
[2 marks]

(ii) Three days after the Black Monday crisis on the Wall street, a poll showed that
only 77% of shoppers in a big mall had heard about it. How long will it take for
99% of the population of shoppers to hear about the Black Monday crisis?
[2 marks]

(iii) What is the fraction of the population of shoppers that will be aware of the
Black Monday crisis after 7 days?
[1 marks]

(b) Let A, B, C and D be square symmetric (m x m) matrices. Let P = X(X ' X)-l X'
where X is an (n X m) full rank matrix. X I stands for the (m x n) matrix transpose
of X.
(i) Show that: [C- 1_C-1 A][A-1 BJ-1 = [1 -C- 1AC][(A- 1B)-lC]-l. [1 marks]

(ii) Find Y, if D(AB)-lYC- 1A = C. [l marks]

(iii) Show that: pk = P for any positive integer k 2: 1. [l marks]

(c) Evaluate the definite integrals,

1
(i) fo x-I 1 dx. [1 marks]
(x 2 -2x+3):r

(ii) fIe (3t 2 + t) dt. [l marks]

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Question 4: [10 marks]

A carpenter makes tables and chairs. Each table can be sold for a profit of $30 and each
chair for a profit of $10. The carpenter can afford to spend up to 40 hours per week
working and takes six hours to make a table and three hours to make a chair. Customer
demand requires that he makes at least three times as many chairs as tables. Tables take
up four times as much storage space as chairs and there is room for at most four tables
each week. Shipments of tables and chairs are only made at the end of the week. Let XT
be the number tables produced and, Xc be the number of chairs produced.

(i) Formulate the linear programming problem of how many of each product to produce
to maximize profit. Clearly set up the objective function and constraints.
[2.5 marks]

(ii) Draw a graph with number of tables produced on the horizontal axis. Mark the
feasible region clearly. Your graph MUST include one iso-objective line.
[2.5 marks]

(iii) What is the optimal level of profits and how many tables and chairs will give this
level?
[1.5 marks]

(iv) The carpenter has been offered the chance to hire an extra room, thereby doubling
the effective storage space. What is the maximum amount he would be prepared to
pay (per week) for the hire of this storage room? Give a full explanation.
[1.5 marks]

(v) Instead of selling tables and chairs separately, the carpenter decides to only sell sets
consisting of one table and four chairs. Find the number of sets that maximizes the
carpenter's profits and compare the new profits to to the results in (iii).
[2 marks]

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Question 5: [10 marks]

Answer both parts of this question

(a) A manufacturer determines that for each quantity q of output produced he faces a
daily average cost (in hundreds of dollars per unit of output)

324 5 19
c = +-+-
J q2 + 35 q 18

(i) As daily production increases, the average cost approaches a constant in dollar
amount. What is this amount.
[1 marks]

(ii) Determine the manufacturer's marginal cost (change in total cost due to a change
in quantity produced) when 17 units are produced per day.
[2 marks]

(iii) The manufacturer determines that if production (and sales) were increased to
18 units per day, revenue would increase by $275. Should this move be made?
Explain why.
[2 marks]

(b) Let U(x, y) be a utility function which attaches a measure of the satisfaction a con-
sumer gets from the consumption of two products X and Y. Suppose a consumer
has a utility,

U(x, y) = 40x - 5x 2 + 4y - 2y 2

Let Px = 2 and Py = 3 be the unit prices for X and Y. The consumer has a total
income of $1 to spend on the two products,
(i) Write down the Lagrangian function and first order conditions for the problem
of maximizing the consumer's objective function.
[2 marks]

(ii) Rewrite the first order conditions in matrix form, Az = b, where A is a (3 x 3)

matrix, b is a (3 x 1) and z = [x y A J'..
Solve for z as a function of the
total budget 1.
[2 marks]

(iii) What happens to the solution in (ii) if the consumer's budget doubles from $1
to $21.
[l marks]

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Question 6: [10 marks]

1. A manufacturer of cameras (C) and film (F) has a total cost c( qc, qp) for producing qc
cameras and qp films given by

The demand functions for the cameras and film are given by

Pc = 35 - 22qb + qp and PP = 20 - qp + qc
where pp is the price per unit of film and Pc is the price per camera.

(i) Write down the manufacturer's profit (7T) as a function of the quantity sold, qc and
qp.
[2 marks]

(ii) How many cameras and units of film should be sold to maximize profit? Use the
second derivative test to justify your answer.
[3 marks]

(iii) What are the selling prices required to realize the profit maximizing levels of pro-
duction?
[2 marks]

(iv) Find the rate of change of the total cost with respect to the price of the camera when
Pc = 30 and PP = 19. Hint: Compute 8c(ZC,QF)
PC
[2 marks]

(v) Compute the point elasticity of demand for cameras when qc is equal to its profit
maximizing level computed in (ii). Assume that qp and pp are at their profit maxi-
mizing levels in (ii).
[1 marks]

END OF EXAMINATION

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ECON 1202/ECON2291(Arts) Quantitative Methods A

Selected Formulae

Pk = R- h = R- I Pk

1= nR-A

10g b(mn) = 10gb m + 10gb n

m A k = (1 + I)-k A Of,
10gb ( - )
n
= 10gb m - 10gb n 1 - (1 + I)-n
10g b(m r ) 110g bm
= (1 + I)-k R· I
10gb 1 = 0

A=R
I = P,t I

5 = P(l + I)n B= C _ k(C: 5)

k

B k = C(1 - d)k

n!
nPr = (n - I)!

c _ nPr _ n!
n r - I! - I!(n - I)!

P(AIB) = P(A n B)
a(1 - In) P(B)
S = ---'---
I-,
P(A1)P(B1IAd
A = R. 1 - (1 + I)-n P(A1IBd = P(A1)P(B1IA 1) + P(A 2 )P(B1IA 2 )
I

5 = R. (1 + I)n - 1 (AT)T = A
I
(A+B)T = AT+BT
(AB)T = BTAT

A(BC) = (AB)C
(1+/)n-l] A(B + C) = AB+AC
5=(1+/) [ R· I
(A + B)C = AC+BC
lA = A
1 - (1 + I)-P
Pk = R . ----'---- BI = B
I

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ECON 1202/ECON2291(Arts) Quantitative Methods A

Selected Formulae

(AB)-1 = B- 1A- 1
(A-1 1 = A t Jf(u)~ dx= J f(u) du= F(u)+c

t
(A T 1 = (A -1)T
(A+B) =1= A-I + B- 1
lb f(x) dx = F(X)]: = F(b) - F(a)

IA 2 1 = all a22 - a21 a12

IA 3 1 = all (a22 a33 - a32 a23)
-a12(a21 a33 - a31 a23) lb f(x) dx = -la f(x) dx
+a13(a21 a32 - a31 a22)
la f(x) dx = 0
1
A-I = det(A) adj(A)
l b
kf(x) dx = k la f(x) dx

j'(x) = lim f(x

box---+O
+ ~x)
x~
- f(x) lC f(x) dx = lC f(x) dx + l b
f(x) dx

dC
MC = -
dq N(t) = Ae kt
dR
MR = - N(t) = M - Ae- kt
dq
pdq N(t)- _M_...,.-
'f/(q) = - - - 1 + Ae- kt
qdp
bz bz bx bz by
J a
x dx = _1_ x a+ 1 + c (a
a+1
=1= -1)
-=--+--
fJt bx fJt by bt

J~ dx = In Ixl + c L = f(x, y) + A[c - 9(X, y)]

J ax
e dx =
1
_e ax + c (a
a
=1= 0)
o 9x 9y
J X
a dx = Ina
1
-ax+c (a> O,a =1= 1)
IHI = 9x Lxx Lxy
9y Lyx Lyy

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