Name:

MEH0L KIVASTAVA ID: 2622B3A7 0604P

BIRLA INSTITUTE OF TECHNOL0GY AND SCIENCE, PILANI
FIRST SEMESTER 2023-24
Comprehensive Examinations, Part- A&B(Closed Book) Maximum Marks: 40.00
Course No :ECON F211
Course Title :Principles of Economics Weightage :20%
Date :13/12/2023 (FN) Suagested Time: 1 hour
Instructions: 1. Part A question paper carries a total 20 questions and Part Bcarries 10 questions. 2. Answers to part
Ato be written in the box against each questions in CAPITAL LETTERS A, B, C, D, or E.
3. Part Bis short answer type questions and answer will be written in the box provided below each question.
Q1. Which of the following will cause thefirm's demand curve to shift?
(A) Achange in the price of the good or service.
(B) Achange in the amount offered for sale.
(C) Achange in the seller's profit assoclated with the good or service:
(P) Achange in a non-price variatble in the demand function.
(E) Achange in production technology for the good or service.
Q2. The firm's demarnd equation is: Q=600 60P +2Y. If price increases by Rs.2 and income increases by Rs80,
then quantity will
(A) Increase by 160 units. PIncrease by 40 units.
(C) Decrease by 120 units. D) Decrease by 40 units.
Q3. The initial price for an item is Rs5.00,and the quantity demanded is 350 units. When the price is raised,o Rs5.25,
the quantity demandedfalls to 300 units. The point price elasticity of demand is:
(A) -2.25 (P -2.86 (C) -3.5 (D) 4.05 (E) -5.75
Q4. Demand for a service depends upon price and income, where Ep -0.6 and Ey =1.2. If price falls by4% and
income rises by 2%, service demand will
( Be approximately unchanged.
B) Increase by about 6%.
(C) Increase by about 4.8%.
(D) Increase by about 9.6%.
(E) There is not enough information to provide an answer.
Q5. In seeking to maximize profit, what rule should the firm follow regarding the amount of labor to hire?
AY Hire as long as MRPL> MRPK.
B) Hire until MRP, > PL
(C) Hire until MRPL = PL.
(D) Hire until MRPL= 0.
(E) Hire until MR= MC.
Q6. Afirm produces 100 units of output at an average variable cost of $5 per unit and incurs a total fixed cost of
$700. Then,
Average total cost is $12 per unit.
B) Total variable cost is $1.200.+
iG) Marginal cost is constant and equal to $5 per unit.
MD) Average fixed cost is $5 per unit.
(E) Total cost is $500.
Q7. Afirm's total cost function is given by: C = 100+ 10Q+202. At Q= 10,
(A) Total cost is 400 and marginal cost is 10.
(B) Marginal cost is constant.
(C) Average cost is 50.
(DY Fixedcost is 100 and marginal cost is 50.
E) None of the above answers is correct.
Q8 Afirm's profit equation is given by:n=(-)200 + 80Q -0.2Q2. Therefore,
(A) Marginal profit= 80 -0.2Q.
(B) The firm's profit-maximizing output is Q = 400.
(0 The firm's profit-maximizing output is Q= 200.
D) Answers a and b are both correct.
Q9. In the short run, a perfectly competitive firm will continue to manufacture at a loss if:
K It is covering all of its fixed cost (B) Variable cost is less than fixed cost
(C) Fixed cost is zero
(D) It is cOvering all of its variable cost
 Q10. The demand curve for a monopolistic competitor slope downward because
(A) Demand drops to zero after a slight price increase. +
B) There are close but not perfect substitutes for the firm's product.
(C) Customers have little loyalty for competing sellers' products. B
(D) Customers are largely uninfluenced by advertising:
(E) Products in the market are undifferentiated.
Q11.When Reserve Bank of lndia gives loan to commercial banks:
RBI's total assets increase and money supply increases
B) RBI's total assets decrease and money supply
increases
(C) RBI's total assets increase and money supply decreases
(D) RB>'s total assets remain unchanged and money supply increases
Q12. Which of the following is an example of monetary policy?
(A) Raising taxes to reduce inflation. t
(B) Increasing government spending to reduce unemployment and stimulate production.
(Or Lowering interest rates to encourage spending and promote
employment.
(D) Cuing tood stamps and other transfer payment programs during periods of rapid growth and high inflation.
(E) None of the above
Q13.Ifa profit-maximizing
(A) average revenue is lessmonopolist faces a downward-sloping market demand curve, its
than the price of the product.
(C) marginal revenue is less than the price of (B) average revenue is less than marginal revenue.
(D) marginal revenue is greater than the the product.
price of the product.
Q14. Which of the following describes long run equilibrium for a
(A) Price > Average Total Cost, Price = firm in monopolistic competition with free entry? ÁTC= AR
(B) Price =Average Total Cost, Price >Marginal Cost.
(C) Price> Average Total Cost, Marginal Cost.
Marginal Revenue = Marginal Cost.
(DPrice= Average Total Cost, Marginal Revenue> Marginal
Q15. Amonopolist and aperfect competitor can both Cost.
following is not true? sell 10 units ofa good they produce for $5 per unit. Which of the
(A) The perfect competitor can sell
unit 11 for $5
The perfect competitor's MR Curve is a
C) The monopolist can sell unit 11 for $5! straight line at $5
(D) The monopolist has a
decreasing marginal revenue curve.
Q16. One bag of flour is sold for $1.00 to a
consumers. Asecond bakery, which uses the flour to bake bread that is
four transactions into bag of flour is sold for $1 to a grocery store who sells it to a sold for'$3.00 to
(A) GDP increases byaccount, what is the effect on GDP? consumer for $2.00. Taking these
$2.00.
(C) GDP increases by $6.00. GDP increases by $5.00.
cDP
increases by
Q17.Consider two
? for $24,000. Later incars manufactured by Chevrolet in 2009. During $7.00.
the 2009, Chevrolet sells one of the two cars to
value of $30,000, is unsoldsame year, Sean sells the
at the end of 2010 and itcar to Katifor $19,000. The second automobile, with a marketSean
contribute how much to GDP for 2009? remains in Chevrolet's inventory. The
(A) $24,000 (B) $35,0004
transactions iust described
Q18. The residents of country A earn SY$54,000 (D) $73,000,
million in country A. These earnings $500 million of income from
are accounted for in country A's abroad. Residents of other countries earn $200
GNP which is larger than GDP in country A.
GDP which is larger than (B) GNP which is smaller than GDP in
(D) GDP which is smaller thanGNP in country A. country A?
GNP country A.
in
Q19. AGerman citizen buys an
(A) U.S. net exports increase, automobile produced in the United States by a Japanese
U.S. GDP is unaffected, Japanese GNP company. As a result,
German net exports decrease, and German GNP and GDP are
increases,
(B) U.S. net exports and GDP
German net exports decrease, increase, Japarnese GNP increases, unaffected.
(u.S. net exports and GDP increase, Geman GNP is unaffected, and German GDP
Japanese GNP increases, decreases
German net exports decrease, and Gemman GNP and GDP are unaffected.
(D) U.S. net exports and GDP are
German net exports, GNP, andunaftected, Japanese GNP increases, and
GDP decrease.
Q20. If duopoly
firms that
(A) price and quantity wouldarerise.not colluding were able to successfully collude, then
(Cy price would rise and quantity would fal. (B) price and quantity
(D) price would fall andwould fal.
quantity would rise.
Part-B (Short Answer Type Questlons) 2Mx10 =20M
Q1.Tata Steel has carefully measured production in its new plant to determine whether it is technicaly eficient in
production. It has found that, for its two inputs Kand L, t has the following marginal products: MPx =15, and MP=
22. The inputs are hired in perfectly compettlve markets, and the firm faces input costs of Px=$7.50 and P, =$10 per
unit. You have been hired as a consutant to assist Specialty in increasing profitability. What do you recommend about
production planning? Explain briefly.
22 -22

1.5 wts/s MRR > MRPe

Q2. Alawyer is contemplatingg quitting her current job with a major corporation (annual salary $110,000) to open her
OWn law firm. She estimates that the total cost of operating the office will be approximately $118,000 per year. The
potential revenue is estimated as $200,000 per year. Compute accounting cost, accounting profit, economic cost, and
economic profit.

200,000-8>000 = 82,000 Per

yea
18 ,000+ Ll0,000 =$228, 000 Pe 7ietestooo
200, 000 - 228,000 = - #28,000 per

Q3. Consider a fimm that uses capital and labour as inputs and sells 5000 units output per year at the ongoing market
labour cost is 45000 annually. Assume that the total capital stock of
price of 10 per unit. Also assume that the total comparable risk is 10% annually.
the firm is currently worth of 100,000 and the return available to the investors with
There is no depreciation cost. Is the firm making profit? Explain your answer.

45000 +
100,000 13 5,4o4.04

Q4. Ajax is a competitive firm operating under the following conditions: Price of the output is $5,the profit maximizing
level of output is 20,000 and total cost of the maximizing levelof output is $120,000. The firm's only fixed factor of
production is a $300,000 stock of capital in the form of building. If the interest rate available on comparable risk is
10%, should this firm shut down immediately in the short run? Explain your answer briefly.
T.C= $ 120,00D
- #20,oo0)
=27 27 27.27
Y. Vcapital = 0,0o0
Sine inwOstgteapítal ives kete setn u t do
Q5. Your Uncle Joe has just died and left $10,000 payabieto youwhen you turn 30 years old. You are now 20. Curently,
the annual rate of interest one can obtain by buying 10-year bonds is 6.5 percent. Your brother offers you $6.000
cash right now to sign over your inheritance. Should you do it? Explain briefly. - 6-5°

= 5327-26
l"065)o

bDOD > 5327-26) = I shoulaopt y toothe's BR

Q6. During 1993, when the US economy was growing very slowly, President Clinton recommended a "contractionary
fiscal policy' to reduce the deficit. Though this was passed by the congress in the budget Act, some who opposed the
Billargue that US is pursuing the contractionary fiscal policy at wrong time. Explain theirlogic and the meaning of
contractionary fiscal policy.

tad, "and spendtb os ,ie, (tayes>perdiur. ).

|Atthough to
qven tat he goUAent shod pump mon in ie eeoHomy
Q7. During 2002, real GDP in Japan rose about .3 percent. During the same period, retail sales in Japan fell 1.8 per
cent in real terms. What are some of possible explanations of GDP rising when the retail sales to consumers are
faling?

Q8. You are given the following T - account for a bank:

Assets Liabilities
Reserves 500 Deposits 3,500
Loans 3,000

The cash reserve ratio is 10% currently. Based on the above information, calculate by how much can the bank
increase the loans?
350
500 - 350

Q9. Explain the problem of double coincidence of wants and indivisitbility faced under barter system. How the functions
have money solved it? Explain briefly.

meles aceding to tthes nedh. But it rquised, doutle coinjdne

have a daaand o something tnyptt ees.
insead paying baek oreyetn
we couo dl secty pay
MOnta
Q10. Write down some of the limitatiohs of wsin: G aan index of welfare of a country.

homemers ,isng
childn ete.
 MEHDL siYASTAVA 202283A70ßDA0
BIRLA INSTITUTE OF TECHNOLOGY AND SCIENCE, PILANI
FIRST SEMESTER 2023-24
Comprehensive Examinations - Part- C(Open Book)
:ECON F211 Maximum Marks :40.00
Course No
Course Title :Principles of Economics Weightage :20%
Date :13/12/2023(FN) Suagested Time: 2 hours

Instruction: Allthe parts of a questions should be answered together and sequentially.

Q1. Afirm has the demand function 22-0.50 P=0 and the average cost function

AC = -g-8.50+ 50+90
3
a) At what level of output does the firm maximize total revenue? What is the value of total revenue at that output
level?
b) At what levelof output does the firm maximize total profit? What is the value of total profit at that output level?
(4 MJ
Q2. Suppose a manufacturing firm has average revenue functions in three markets as follows:
=15.75 -0.25P
, =21-0.2P,
e =12.5
The total cost function is TC = 20 + 5Q,where Q= Q1 + Q2t Q3
a) Calculate the profit maximizing levelof output and price in three markets if the firm follows the policy of price
discrimination and policy of no discrimination.
b) Estimate the demand elasticities and compare it with the price charged in each market. [8 MJ
Q3. The Cityof Bangalore is flooded with Movie halls and is clearly a mgnopolistically competitiye industry. The
demand curve faced by one of these halls, named Majestic, is given by: [6 M]
P=5-0.002Q

The total cost function is given by:

TC = 6Q-0.004Q2 + 0.000001Q3
(a) What is the profit maximizing price that the Majestic can charge?
(b) What is the profit earned by the Majestic?
(c) Can the Majestic owner maintain this price and continued to earn the profit in the long run? Why or why not?
(d) What is the long run equilibrium price?
(e) What is the excess capacity of the firm?
Q4. Following are the data pertaining to a Five Good Economy.
Production Price per unit (Rs.)
Year Year 2 Year 1 Year 2
Good A 13 10 11.30 12.70
Good B 5 6.60 6.40
Good C 16 8.20 9.30
Good D 12 9 4.60 3.20
Good E 15 19 5.85 6.25

(a) What is the Nominal GDP in Year 1and year 2? What is the percentage change in Nominal GDP in year 2?
(b) Prove that rate of growth are sensitive to the choice of base year.
(c) Prove that price changes can be sensitive to the choice of base year. [8 MJ
P.T.0.
 Visit httos://suana

cost 300,000 and has a useful

Q5. The manager of Automated Products is thinking to purchasea new machine that will Products
machine will yield (year-end) cost reductions to Automated of 50,000 in year1,
life of five years. The year 5.
T60,000 in year 2, 75,000 in year 3, and 790,000in year 4 and 90,000 in

if the interest rate is 8 percent?

a) What is the present value of the cost savings of the machineanswer
your with the calculation of Net Present Value.
b) Should the manager purchase the machine? State [4 M]

Q6. You are given the following T-account of RBI and Commerclal banks
for India. Assume the initial required reserve
ratio is 10percent.
[10 M]

RBI Commerclal Banks

Assets Liabilities Assets Liabilities
Govt. Securities 100 Reserves 50 Reserves 50 Deposits 500
Currency 50 Loans 450

(All the Values are in Cr. of Rupees)

a) Due to low inflation, RBI has decided to decrease the required reserve ratio from 10 to 8 percent.
) Show the new T-account for both the RBl and commercial banks after the change in the required reserve
ratio and explain the changes in the accounts.
(i) Calculate the changes in the money supply in the economy achieved by the policy change.
b) Now, with required reserve ratio of 8%, RBI wants to increase money supply further hence they reduced the
discount rate/ repo rate and the commercial banks borrowed 10 illion crore Loans from RBI.
() Show the new T-account for both the RBland commercial banks after increase in borrowing from RBl and
explain the subsequent changes in the accounts.
(ü) Calculate the changes in the money supply in the economy achieved by the policy change.

***END***
 PART-C
91) P= 22 - B
2
output lwel
R =22 Ror may. totol
da

TRmo 22 (22)-22) 2

TR may 242
AC=
- 8-50t 508 +90
TR - Te

g)- ( - 8-5 Q'+ S0Q +90))

(222 - -

28 (& - 40 -{)

+ 16Q -2

Q 2, 14

Fo7 2 minima
dQe
mexiwma

|4
 P=
5Q- 0o0020
’ MR - b-00 4 B
O"00000 &
M=

a) Cond

00 003 Q O" 004 Q+ =0

4 000 + 10 -0

2 000
oR
332 3
d Me
Cond 2

- b-00 + 0-00 006 a)o-o04)

ter
P 2

K TR - T
(500- 0-002R)

114Edo
2D00

PYohit is
 5- 0. 0022
d) ATR =
bD0000| Q
b- D-004 Q +

A TR A TO

R - . 002 & +l=0

0-000 00l
=0

5 - b.D02*0DO

) Maf etie ell is alss the

e 1000 1o00
 Vartantu.

(
D4)
Yeo 1
/= A

(3* 143o) + (5y b-to) 4

(0x 3. 26) +(2x 4«66)
+(5 S-35)
lRs 404-35

RS 474.55

40 4:9S

44 4. 55
NOminal 2
Rel
474-59 800 = l" 55
44.5 s

n
lo Real onDP | l 04
404.s
 Rs 474.55 )
Rs 4 22.25
P2 4,
4745 S yt00
4222S

12-38 ro
NOinal = 1

values nat

c) Ln

pretowsly)

Ttation

= NOminal
4 22"29

NOminal

|-0.95? 4-38o

Hene 2
B4) e5) 75,000 +90,0on
a) a) P.v= S000D + 60, 000 +
(+o3) (-03) (-08)
4

S|440-32+
40,00D
59537.41 (08
= A6 29% .24 +
140 43"22+ 705)735

3016 54.Sa MUAUGI? 284, 67-21

239 57.41

Net ret vaQue

(234,874.21) - (3 00, o00)

RS - 15,320.79
sheutt NUT
 Atl values in Cx
ComM

a) i) RBI Asets
Asst depouts 625
450
Resewes 50

umeney
(50x 1b0

qve but leans

) M1
550

67
50 + 6 25

12 5 inoree) Cx

+) :) Asets
Latietiy iabietie3

govt. eus'Hes Rewwes 60 kewes e depesits

lbans 100 BorOs
fem RBI
Lon to
COmmiral
bonks

60 Cr.
(25 Cx

) supply 800 - 675

ator a) |25 Cx (inorse

62) T 20 + 5R

2
-4Q +43 Q,
2
5 8, + 1o5

TR 6a 4 7503

MR dTR -80, + 63

-80,+63 =5

P 4 (15.75 -a) 34

MR2
t:.-0 ,+ 10 5 -5
2

5 (21-8 55

-|2 Q +75
= 5-3

= 6l125a)- 40-02
-120, +75 =5

- D.25 X 34
2) dp 725

) - 0-2x 55

40.02
5-33
Comythio)un