Time allowed 60 minutes Code A
(if the last digit of your student’s code if an odd number)
Problem 1 (2 points). A project requires an initial outlay of $100000
and produces a return of $30000 at the end of year 1, $40000 at the
end of year 2, and $R at the end of year 3.
a/ Determine the value of R if the internal rate of return is 10%.
b/ Given that R = 52000 and the market rate r = 9%, what is the net
present value of the project.
Problem 2 (3 points). A regular saving of $200 is made into a sinking
fund at the start of each year for 10 years. Determine the value of the
fund at the end of the 10-th year on the assumption that the rate of
interest is:
a/ 8% compounded annually;
b/ 8% compounded continuously.
Problem 3 (3 points). The demand function for a firm’s domestic and
foreign markets are:
Q1 = 80 – 2P1 ; Q2 = 100 – 4P2 ; and the total cost function is: TC =
30 + 20Q, where Q = Q1 + Q2.
a/ Determine the price P needed to maximize profit without price
discrimination.
b/ Find the maximum profit.
Problem 4 (2 point). A firm’s production function is given by
Q = 20 √ KL+ 6L with K = 90 and L = 40.
a/ Find the values of the marginal products, MP K and MPL, then
estimate the overall effect on Q when K increases by 3 units and L
decreases by 2 units.
b/ State the value of the marginal rate of technical substitution
MRTS and give an interpretation of this value.
Time allowed 60 minutes Code B
(if the last digit of your student’s code if an even number)
Problem 1 (2 points). A firm short-run production function is given
by Q = 60L2 - L3.
a/ Find the value of L which maximizes APL .
b/ Find the value of MP L for the value of L that was found in
question a/.
Problem 2 (3 points). The prices of a good at the end of each year
between 2016 and 2018 (with 2016 being the base year) are listed in
the table which also shows the annual rate of inflation:
year 2016 2017 2018
Nominal price 255 275 310
Inflation (rate) 4% 6% 5%
Given the index number of the real price for 2019 is 110, and
inflation rate for year 2019 is 6%, respectively.
a/ Find the real price for year 2019.
b/ Find the noninal price for year 2019.
Problem 3 (3 points). The demand function for a firm’s domestic and
foreign markets are: Q1 = 80 – 2P1 ; Q2 = 100 – 4P2 ; and the total
cost function is: TC = 30 + 20Q, where Q = Q1 + Q2.
a/ Determine the total demand Q = (Q 1 + Q2) that should be achieved
to to maximize profit with price discrimination.
b/ Find the maximum profit.
Problem 4 (2 point). An individual’s utility function is given by
U = 10x 0.5 0.5
1 x2 where x1 and x2 denote the number of units consumed
of goods 1 and 2, given x1 = 16 and x2 = 25.
a/ Find the values of the marginal utilities of x1 and of x2, then
estimate the overall effect on U when x 1 increases by 3 units and x 2
decreases by 2 units.
b/ State the value of the marginal rate of commodity substitution
MRCS and give an interpretation of this value.