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    HS20001 Economics ES 2016

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    Vivek Marwade
    This document contains instructions for a 3 hour economics exam with 5 questions for 410 students. It includes the following key details: 1) Question 1 has multiple parts asking students to define the law of diminishing marginal returns, economic regions on a production plane, factors that cause increasing and decreasing returns to scale, and how marginal products depend on factor ratios in Cobb-Douglas production functions. 2) Question 3 asks students to derive the multiplier effect from a given consumption and investment function, and illustrate the impact of changes in autonomous investment on equilibrium income. 3) Question 4 provides cash flow information for two capital projects and asks students to calculate payback period and net present value to determine the superior project based

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    HS20001 Economics ES 2016

    Uploaded by

    Vivek Marwade
    22 views2 pages
    This document contains instructions for a 3 hour economics exam with 5 questions for 410 students. It includes the following key details: 1) Question 1 has multiple parts asking students to define the law of diminishing marginal returns, economic regions on a production plane, factors that cause increasing and decreasing returns to scale, and how marginal products depend on factor ratios in Cobb-Douglas production functions. 2) Question 3 asks students to derive the multiplier effect from a given consumption and investment function, and illustrate the impact of changes in autonomous investment on equilibrium income. 3) Question 4 provides cash flow information for two capital projects and asks students to calculate payback period and net present value to determine the superior project based

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    HS20001_Economics_ES_2016

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    This document contains instructions for a 3 hour economics exam with 5 questions for 410 students. It includes the following key details: 1) Question 1 has multiple parts asking students to define the law of diminishing marginal returns, economic regions on a production plane, factors that cause increasing and decreasing returns to scale, and how marginal products depend on factor ratios in Cobb-Douglas production functions. 2) Question 3 asks students to derive the multiplier effect from a given consumption and investment function, and illustrate the impact of changes in autonomous investment on equilibrium income. 3) Question 4 provides cash flow information for two capital projects and asks students to calculate payback period and net present value to determine the superior project based

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    22 views2 pages

    HS20001 Economics ES 2016

    Uploaded by

    Vivek Marwade
    This document contains instructions for a 3 hour economics exam with 5 questions for 410 students. It includes the following key details: 1) Question 1 has multiple parts asking students to define the law of diminishing marginal returns, economic regions on a production plane, factors that cause increasing and decreasing returns to scale, and how marginal products depend on factor ratios in Cobb-Douglas production functions. 2) Question 3 asks students to derive the multiplier effect from a given consumption and investment function, and illustrate the impact of changes in autonomous investment on equilibrium income. 3) Question 4 provides cash flow information for two capital projects and asks students to calculate payback period and net present value to determine the superior project based

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    of 2

    Indian Institute of Technology Kharagpur

    Date: FN/AN Time: 3 hrs Full Marks: 50 No of Students: 410 (Approx)


    Spring End-Sem. Exam, 2016 Subject: Economics Subject No: HS20001
    Instructions: Answer one question at one place only. All questions are compulsory.

    1. a) State the law of diminishing marginal returns. Why does production increase at an
    increasing rate in the initial stage of the law? What is meant by economic region on the
    production plane? Under what conditions are the isoquants convex to origin? What are
    the factors that cause increasing and decreasing returns to scale? Show in a Cobb-
    Douglas production function that the marginal products of labour and capital depend
    on their ratios in the production function. (l + 1 + 1 + 1 + 2 + 2)

    b) Illustrate the relationship between short-run average cost (SAC) and short-run marginal
    cost (SMC) assuming a cubic COSt functions. Explain with examples the economies and
    diseconomies of scale. (1 + 2)
    2. a) Calculate elasticity of supply of the following supply function when price P = 10
    i) S=-100+2P
    ii) S=-77+4P+P2
    (1 + 1)
    b) A firm's production function is given by Q = - (2/3) L 3 + 10 L 2, where Q is the output
    produced and L is the labour employed. Show that the diminishing marginal product
    of labour operates when employment of labour is 6 or more. (2)
    c) Given the total cost function TC = 2Q3 - 15Q2 + 30Q + 16. Find out the level of
    output at which marginal cost is equal to average variable cost. (2)
    3. a) Derive the value of multiplier and prove that there can be as many multipliers as the
    demand functions and the value of multiplier varies according to the nature of the
    demand functions.
    An economy's consumption function
    C = 50+ 0.80Y
    and
    investment I = 100.
    where Y stands for household income.
    Derive equilibrium income. If autonomous investment is increased by 50, what would be
    its impact on income under the conditions that the rise in investment is (a) once-over
    type, and (b) permanent? Illustrate this with the help of two separate tables while
    exhibiting the relationship between total income and total spending, and realised
    investment and planned investment. (1+2+2)

    b) Why is the demand curve of a perfectly competitive firm infinitely elastic? In this
    context, discuss the basic characteristics of perfect competition with their significance
    and the conditions of profit maximization both in the short-run and long-run. (1+2+1)
    4. a) Why does the time value of money change? How can they be considered while
    deriving the present value of money? (2)
    b) What are the discounting methods of evaluating capital projects? Which one is a
    superior method and why?
    A firm is considering two proposals, A and B, each requiring an initial capital of INR
    50 Crore. The expected net cash flows are given as follows:

    Year Project A Project B


    (INR Crore) (INR Crore)

    38 11
    2 22 19
    3 18 32
    4 10 37

    Compute the payback period and NPV of the two projects and suggest which one is
    better under each method. Assume that the risk adjusted discount rate is 12%.
    (2+2+2)
    5. a) How does integration of economies increase the standard of living as measured by

    per-capita income? (6)


    b) What is Human Development? Explain the concept of capability using suitable
    mathematical notations. (1+4)
    c) What is trade balance? What do you understand by current account deficit (CAD)?
    Show that budget deficit leads to higher CAD? (1+ 1+3)

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