Office Use Only

Sample Examination
Faculty of Business & Economics
EXAM CODES:

ETF2700 / ETF5970

TITLE OF PAPER:

Mathematics for Business

EXAM DURATION:

2 hours writing time

READING TIME:

10 minutes

THIS PAPER IS FOR STUDENTS STUDYING AT: (tick where applicable)

Berwick
Clayton
Malaysia
Off Campus Learning
Learning
Caulfield
Gippsland
Peninsula
Enhancement Studies
Parkville
Other (specify)

Open
Sth Africa

During an exam, you must not have in your possession, a book, notes, paper, electronic device/s,
calculator, pencil case, mobile phone, smart watch/device or other material/item which has not been
authorised for the exam or specifically permitted as noted below. Any material or item on your desk, chair
or person will be deemed to be in your possession. You are reminded that possession of unauthorised
materials, or attempting to cheat or cheating in an exam is a discipline offence under Part 7 of the Monash
University (Council) Regulations.
No exam paper or other exam materials are to be removed from the room.
AUTHORISED MATERIALS
YES

OPEN BOOK

CALCULATORS
YES
If yes, only a HP 10bII+ calculator is permitted.
SPECIFICALLY PERMITTED ITEMS
If yes, items permitted are:

YES

NO
NO
NO

Candidates must complete this section if required to write answers within this paper
STUDENT ID:

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DESK NUMBER:

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Page 1 of 8

ETF2700/ETF5970 Mathematics for Business

Page 2 of 9

There are 7 questions. Students should attempt all questions.

Marks total 85.
Formulae are provided at the end of this paper.
QUESTION 1

[(3+2) + 1 + (1+2+2) = 11 marks]

Energy company GreenVolt (GV) owns a property at the wind-swept, sunny location of Ocean Heads.
GV is evaluating two projects: a wind farm and a solar energy plant.
The wind farm requires an initial investment of $10m, and a $5m loss is expected for the first year. For
the following 3 years, GV expects annual returns of $8m from electricity sales.
The solar plant requires an initial investment of $15m. GV expects a loss of $2m for the first year and
annual returns of $9m for the following 3 years.
Assume a discount (interest) rate of 8% compounded annually.
Exhibit 1.1 shows, for each project, a plot of NPV versus discount rate.
Show your working, unless you are instructed otherwise.
(a) (i)
Calculate, in $m to 3 decimal places, the NPV of the wind farm project.
(ii)
For the solar plant project, the NPV is $4.624m.
Ocean Heads City Council is prepared to offer GV an initial grant so that both projects
have the same NPV. If such a grant is necessary, which project should receive it? How
much should it be? Your answer should be in $m to 3 decimal places.
(b)

From your appraisal of the two projects that you have carried out in (a), explain which one you
think is preferable. (Assume that the council has not provided a grant.)

(c)

(i)
(ii)

(iii)
(iii)

Define the term internal rate of return (IRR).

On the basis of IRR, which project do you think is preferable?
Quote suitable figure(s) to justify your answer. You may calculate or estimate IRR.
(You dont have to show your working, but briefly explain how you obtained your value
for IRR. Its not sufficient to say, Used financial calculator.)
When you are choosing the better of two projects, your decision can differ depending
on whether it is based on NPV or IRR. Briefly explain why this is so.
Compare your answers for (b) and (c)(ii). You either chose the same project or different
projects. Briefly state the reason(s) for the similarity or the difference in these answers.

Exhibit 1.1

ETF2700/ETF5970 Mathematics for Business

Page 3 of 9

QUESTION 2
marks]

[5 + (4+1+2) = 12

BlockTech manufactures concrete blocks for the building industry.

Let Q denote the quantity (number of blocks) produced and P, the price ($) per block.
The supply function is
The demand function

P = 60e 0.0025Q
P = 180e 0.005Q

For the following questions, show your working.

(a) Calculate the equilibrium price and quantity. Round your answers to 3 decimal places.
(b)

(i) Show that the price elasticity of demand is given by d = 200/Q.

(ii)
Calculate, to 3 decimal places, the price elasticity of demand at the equilibrium
point.
(iii)
Interpret the value you obtained in (b)(ii).

QUESTION 3

[3 + (4+3+1) + 1 = 12 marks]

A monopolist faces a demand function P = 140 2Q and has costs given as

TFC = 200,
TVC = (1/3)Q3 10Q2 + 188Q.
For the following questions, show your working.
(a)
Obtain an expression for the profit function.
(b)

(i) Obtain the value(s) of Q at the turning point(s) of the profit function.
(ii)
What type(s) of turning point(s) have you found in (b)(i)?
Explain how you decided on the type(s).
(iii)
Calculate the maximum profit.

(c)

Briefly comment on the financial viability of this enterprise. Quote any relevant figure(s).

QUESTION 4
marks]

[4 + (1+9+1) = 15

The Cobb-Douglas function for production output Q is Q = ALK, where

L is labour input, K is capital input, A > 0, 0 < <1 and 0 < < 1.
For the following questions, show your working.
(a)
Use
QL
= Q/L
= AL-1K
and
QLL
= 2Q/L2
= ( 1){Q}/L2
to illustrate the Law of Diminishing Returns to Labour.
(b)

StreetSole makes shoes. The production function for their latest release is
Q = 50L0.4K0.6.
StreetSole wishes to maximise production, but is constrained by a budget of $1,000, with labour
costing $20 per unit and capital costing $50 per unit.
(i)
Write down the Lagrangian function for this optimisation.
(ii)
Find the values of L and K for which the production is maximised.
(iii)
Calculate, to 3 decimal places, the maximum level of production.

ETF2700/ETF5970 Mathematics for Business

QUESTION 5

Page 4 of 9

[(2+1+5) + 3 + 3 = 14 marks]

(a)

The demand and supply functions for two goods X and Y are given below.
Demand:
QX = 120 2PX + 3PY
QY = 150 + 6PX 4PY
Supply:
QX = -240 + 6PX
QY = -150 + 6PY
(i)
Obtain the equations which determine market equilibrium for goods X and Y.
(ii)
Write your answer from (i) as a single matrix equation of the form: AX = B.
(iii)
Using A-1, obtain the prices of the two goods at market equilibrium.
Show your working and provide answers correct to 2 decimal places.

(b)

The coefficients b of a regression model may be estimated via the matrix equation Y = Xb + e,
where the dimensions are Y: n1, X: n(k+1), b: (k+1)1 and e: n1.
Solve Y = Xb + e for b, in terms of X and Y only. Show your working
You may assume that XTe = 0, and that relevant inverse(s) exist.

(c)

Does the system of equations, depicted in matrix form AX = B below, have a unique solution?
Explain your answer.

QUESTION 6
marks]
(a)

[7 + 5 = 12

For the following differential equation, find the general solution for Q and the particular solution
for Q, given P 0, Q 0 and P = 120 when Q = 0.
Show all steps of your working.

(b)

Showing all steps of your working, evaluate the following integral.

1
dx
x ln x

QUESTION 7 (Show all calculations)

marks]
(a)

dQ P 1
=
dP Q Q

(i)

(ii)

[3.5 + 2.5 + (1+2) = 9

The 1995 Australian Bureau of Statistics Yearbook showed a table of Retail price index
numbers, long-term linked series (Base Year 1945=100). In this table, index values for
1970, 1979, 1980 and 1989 were, respectively, 313, 766, 844 and 1714. Use suitable
calculations to explain which decade had a higher rate of inflation: the 1970s or 1980s.
Use the information in (a)(i) to calculate the purchasing power in 1980 of a 1945 dollar.

(b)

Consumer Price Index (2011 = 100) values for the years 2013 and 2014 were 105.8 and 107.6,
respectively. Assume that money could be invested then at 7.2% per annum.
After allowing for the effect of inflation, calculate the real money growth from 2013 to 2014.
Express your answer as a percentage, correct to 2 decimal places.

(c)

(i)

The Consumer Price Index uses, essentially, the Laspeyres method of weighting.
A disadvantage of Laspeyres method is that base period weights become outdated.
Briefly explain how the Australian Bureau of Statistics deals with this disadvantage.

ETF2700/ETF5970 Mathematics for Business

(ii)

Page 5 of 9

Why do weighted composite indexes (eg, Laspeyres & Paasche) have the same weights
in their numerator as they have in their denominator?

ETF2700/ETF5970 Mathematics for Business

Page 6 of 9

ETF2700/ETF5970 Formulae
The Straight Line and Applications

m
Gradient

y 2 y1
x2 x1

Budget Constraint

Elasticity

xPx yPy M

Cost Constraint

y x
.
x y

Q P
.
P Q

wL rK C

Non-linear Functions

logb x = loga x/ loga b

Quadratic Formula
Elasticity

b b 2 4ac
x
2a
d = (dQ/dP)(P/Q)

Index Numbers
It
Simple Price Index

It

p 100
p
p q 100

p q
p q 100

p q
t

Simple Aggregate Price Index

LI t
Laspeyres Price Index

PI t
Paasche Price Index
Deflated Value

pt
100
p0

Current Value
100
Current CPI

Changing base period

Old index value

Old index value in new base year 100

New index value =

Matrices
Determinant

AX = C

consistent
if rank(A) = rank(augmented matrix).
inconsistent if rank(A) < rank(augmented matrix).
rank(A) = n, the solution is unique.
rank(A) < n, there are infinite solutions.

ETF2700/ETF5970 Mathematics for Business

Page 7 of 9

Financial Mathematics

Tn a n 1 d

Arithmetic Sequences and Series

Sn

Tn = arn 1

Geometric Sequences and Series

Simple Interest
Compound Interest

Sn

n
2a ( n 1)d
2

a 1 rn

1 r

a
1 r

Pt = P0(1 + it)
Pt P0 1 i

Compounded annually

i
Pt P0 1
m

Pt P0 e it

Compounded more frequently

Compounded continuously

mt

APR (effective rate) APR = (1 + i/m)m 1

Real growth

APR = ei 1
rr = (1 + r)/(1 + ri) - 1

Depreciation

At = A0(1 it)
At = A0(1 i)t

Straight line
Reducing balance

P0 = Pt(1+i)-t

Discounting & NPV calculation

Vn = P0(1+i/m)n + A0[(1+i/m)n 1)]/(i/m)

Annuities, Loans

V0 A 0

1 (1 i / m) n
i/m
A0 = L(i/m)/[1 (1 +

i/m)-n]

Comparison rate
Flat rate loan

A0 = L(1 + Rt)/n

Differentiation and Applications

dy
dy 1
dy
y ax n
nax n 1
y=lnx , = ; y =e ax , =a eax
dx
dx x
dx

MR
Marginal Revenue:

MC
Marginal Cost:
Price Elasticity of Demand:

dTR
dQ

TR
Q

AC

TC
Q

Average Revenue:

dTC
MVC
dQ

dQ P
.
dP Q

AR

Q P
.
P Q

Average Cost:

d
Cross-Price:

QA PB
.
PB QA

ETF2700/ETF5970 Mathematics for Business

z (f/x)x + (f/y)y

Total differential
z

z z

Page 8 of 9

ETF2700/ETF5970 Mathematics for Business

Page 9 of 9

Differentiation Rules
Power rule
Exponential
Exponential, base e
power ax, a is a constant
log
Product Rule
Quotient Rule

Chain Rule

xn
ex

nx n1
ex

e ax

ae ax

ln x
y u ( x )v ( x )
u ( x)
y
v( x)

1/x
dy/dx = v(du/dx) + u(dv/dx)
du
dv
v
u
dy
dx 2 dx
dx
v
dy/dx = (dy/du)(du/dx)

y f ( u ( x ))

Integration Rules
Power rule
One exception to power
rule
Integral of a constant
Integration of the Natural
Exponential Function
Integration by algebraic
substitution

x dx

xn+1/(n + 1)

x dx
K dx
e dx

ln( x) c

ex c

f [g(x )]dx

Step 1: Let u g (x) ;

Step 2: Deduce an expression for dx in terms of du
Step 3: Substitute u g (x) and dx (in terms of du)

Kx c

f [g ( x )]dx
into
Step 4: Use other rules to obtain final result.