AMITY UNIVERSITY

-----------------------UTTAR PRADESH---------------------
FIRST SEMESTER END TERM EXAMINATIONS: NOVEMBER 2005
MBA- IB

ECONOMIC ANALYSIS
TIME: 3hrs MAX MARKS: 60

Answer any five questions. All questions carry equal marks. Answer both the parts
of a question together:

1 a) A firm earning zero economic profit may show a positive profit on the income
statement prepared by its accountant. Analyze the statement and explain the
concept of accounting and economic profit.

b) Smith a college graduate spends his summers working on the university

maintenance crew at wage rate of 6.00USD/hr for a 40 hour week. Overtime work is
always available at an hourly rate of 1.5times the regular wage rate. For the coming
summer, he has been offered the pizza stand concession at the Students’ Union
building, which would have to be opened 10 hours per day, six days a week. He
estimates that he can sell 100 pizzas a week at 6.00USD each. The production cost of
each Pizza is 2USD and the rent of the stand is 150USD/week. Should Smith take the
pizza stand? Explain.

2 a) Major decisions in large businesses are based on forecast of some type. Explain
Delphi Technique as effective tools for business forecasting.

b)
PRICE(USD) QUANTITY(Q)
10 100
8 120
6 140
From the above table using regression technique estimate at what range of output
the demand is elastic.

3a) Explain the following with respect to elasticity of demand. Illustrate your answer
with examples
(i) Elastic, Inelastic products
(ii) Inferior, necessities and luxuries
(iii) Substitue, complements

b) Sailright Inc. manufactures and sells sailboards. Management believes that the
price elasticity of demand is -3.0. Currently, boards are priced at 500 USD and the
quantity demanded is 10,000 per year. How much will the total revenue change if
the price is increased to 600 USD.
4 a) Firm operates in the short run and plan in the long run. Explain the statement
and illustrate your answer with an example.

b) Q= 20K0.5 L0.5 ( K: Rate of capital input, L: Rate of labor output, Q: Rate of

output)
The firm is producing efficiently using 25 units of capital and 16 units of labor. If
the market price of the product is 160 USD/unit. Calculate firm’s profit.

5 a) Management decision to become more leveraged is effectively a decision to

accept greater risk for the chance to earn higher profit. Explain the statement with
the help of profit elasticity.

b) TC = 1000 + 10 Q – 0.9Q2 + 0.04Q3 ( TC: Total cost, Q: Quantity)

Find the rate of output that result in minimum average variable cost.

6 a) For long run Profit Maximization in monopolistic competition, the profit

maximizing output does not occur at the minimum point on the firm’s average cost
curve and hence the firm is operating at an inefficient output rate. Explain the
statement and illustrate your answer graphically.

b) TC = 1000 + 150Q – 20Q2 + Q3 (Q: Quantity, TC: total cost)

Below what price should the firm shut down operations.