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    Compre 2019 (Solved)

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    yashvardhansharma

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    Compre 2019 (Solved)

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    yashvardhansharma
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    Compre 2019(Solved) (1)

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    Compre 2019 (Solved)

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    yashvardhansharma

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    of 5

    ECON F211: Principles of Economics (Sample Solutions and Marking scheme) Part - B (CB)

    Q.1. Solution A) - a. Equating MC and MR to determine


    the profit-maximizing quantity, 55 - 4Q = 2Q - 5, or Q = 10. P = 55 - (2)(10) = $35.
    Q = 10 P= $35 π = (35)(10) - (100 - (5)(10) + 102) = $200. Profit = $200 [4
    or 0]
    B) The deadweight loss is equal to the area below the demand curve, above the marginal cost curve,
    and between the quantities of 10 and 15, DWL = (0.5)(35 - 15)(15 - 10) = $50. [4 or 0]
    C) Government sets the maximum price that MTN may charge is $27.00. Substitute the price of
    $27.00 into the demand equation to determine the effect on the equilibrium quantity sold:
    Q= 27.5 -0.5 (27), or Q = 14. Profits are π = (27)(14) - (100 - (5)(14) + 142) = $152. [4 or
    0]

    Q.2. Solution – A)

    Q1 = 6.79 Q2 = 5 P1 = $25.53 [2 or 0] P2 =$ 55 [ 2 or 0]

    B) Profit = TR (TR1 + TR2 ) – TC Profit = $268.26 [4 or 0]

    C) E1 = 1.5 [2 or 0] E2 = 1.1 [2 or 0]

    Q.3. Solution – A) By spending $300,000 today on a new machine, the firm will reduce costs by
    $365,000 over five years. However, the present value of the cost savings is only

    Present Value = $284,679 [4 or 0] Consequently, the net present value of the new machine is

    NPV = - $15,321 [3 or 0]

    Since the net present value of the machine is negative, the manager should not purchase
    the machine. [3 marks will be awarded only when any one of the above value is correct or 0]

    Q.4. Solution A) [ 3 or 0 for each cell ] [3*4=12]


    Profit (in million) Payoff Matrix Firm 2
    (Firm 1 profit, Firm 2profit) Invest in clean technology Do not invest
    Firm 1
    Invest in clean technology 3,3 6,2
    Do not invest
    2,6 5,5
    [Rest of the parts will be evaluated only when the above matrix is correct]
    B) Yes, the dominant strategy for player one us to invest in clean technology. [2 or 0]
    C) Yes, the dominant strategy for player two us to invest in clean technology. [2 or 0]
    D) The equilibrium strategy for both the firms is to invest in clean technology and the payoff (profit) is
    3,3 (millions) for both the firms. [2 or 0] Yes, this is a Nash Equilibrium. [2 or 0]

    Q5. Mentioning all relevant Particulars are required for calculation of each parts otherwise marks
    are deducted

    (a) GDP = Personal consumption expenditures + Net private domestic investment + Depreciation +
    Government consumption and gross investment + Exports - Imports = 11930 + 2345 + 551+ 3175 + 2337
    – 2875 = 17463

    (b) GNP = GDP + (Receipts of factor income from the rest of the world - Payments of factor income to the
    rest of the world) = 17463 + 827 – 616 = 17674
    (c) NNP = GNP - Depreciation = 17674 – 551 = 17123
    (d) National income = NNP – Statistical discrepancy = 17123 – 176 = 16947
    (e) Personal income = National income – retained earnings of the corporations = 16947 – 341 = 16606
    (f) Disposable personal income = Personal income - Personal income taxes = 16606 – 1742 = 14864
    (g) Personal saving = Disposable personal income – personal consumption expenditures – personal
    interest payments – transfer payments made by the household = 14864 – 11930 – 256 – 170 = 2508

    Q6. (a) The bank is required to hold .1(8,000) = 800 in reserves.

    (b) Excess reserves = 1200 – 800 = 400.


    (c)
    Assets Liabilities
    Reserves 1200 – 500 = 700 Deposits 8000 – 500 = 7,500
    Loans 6,800

    (d) Required reserves are now 750. The bank has deficit reserves of 50.
    (e)
    Assets Liabilities
    Reserves 750 Deposits 7,500
    Loans 6,750

    Q7. (a) (i) When required reserve ratio decreased from 10% to 8%, the new T – account is as follows;

    RBI Commercial Banks


    Assets Liabilities Assets Liabilities
    Govt. Securities Reserves Reserves 50 Deposits 625
    100 50 Loans 575
    Currency
    50
    (ii) Current Money Supply = Currency + Deposits = 50 + 500 = 550 Crores of Rupees
    With changes in RRR the new money supply is = Currency + Deposits = 50 + 625 = 675
    Hence, the changes in the Money supply is 125 Cr. Of Rupees.

    (b) With RRR = 8%, the money supply is = Currency + Deposits = 50 + 625 = 675
    Now as Commercial bank borrows 10 crores from RBI as discount rate decreased. The new T- account is
    prepared as follows;
    RBI Commercial Banks
    Assets Liabilities Assets Liabilities
    Govt. Securities Reserves 60 Reserves 60 Deposits 750
    100 Currency 50 Loans 700 Amount owed to RBI 10
    Loan to CB
    10

    (ii) New money supply is = Currency + Deposits = 50 + 750 = 800


    Hence, the changes in the Money supply is 800 – 675 = 125 Cr. Of Rupees.

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