POKHARA UNIVERSITY

Level: Master Trimester: Fall Year: 2020

Programme: MBA Full Marks: 70
Course: Economic Analysis for Business Pass Marks: 42
Time: 3 hrs.
Candidates are required to answer in their own words as far as practicable. The
figures in the margin indicate full marks.
Group 'A': Attempt all questions (5×10=50)
1. The demand and supply curves of a product are depicted by the
following equations: Qd = 2250 – 25P and Qs = –1125 + 25P. The
government announces a program to support a price increase of Rs 15
per kg of this grain, which imposes a price floor of Rs 82.50.
a) What quantity of grain is purchased by the consumers, supplied by
the producers and purchased by the government at the support
price?
b) What is the change in consumer surplus, producer surplus and total
surplus? What is the cost of government to implement this price
support policy?
OR
Critically examine the effects of price control policies in the form of
price ceiling and price floor on the basis of the market efficiency.
2. The production function of a company is Q = 100K0.5L0.5. If the price of
capital is Rs 100, price of labor is Rs 200 and the tentative budget is Rs
5000, find the optimal combination of capital and labor. Calculate profit
if the price of the product is Rs 50.
3. Explain about third degree price discrimination. Describe graphically
the price leadership model.
4. A monopolist is deciding how to allocate output between two markets.
The two markets are separated geographically (East Coast and
Midwest). Demands for the two markets are P1 = 15 – Q1 and P2 = 25 –
2Q2. The monopolist's total cost is TC = 5 + 3(Q1 + Q2). What are price,
output and profits (i) if the monopolist can price discrimination, and (ii)
if the law prohibits charging different prices in the two regions.
5. Examine the market inefficiencies created by the presence of
externalities.
Group 'B': Problem-solving/case studies (1×20=20)
6. A manufacturing company is operating in Pokhara with the demand
function given as P = 25 – 0.5Q, and the total cost function as C = 1.5Q2
+ 5Q + 10. If the company wanted to maximize profit, what is the price-
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output combination and the total profit and revenue? The management
of the company realizes the need for capturing market. Therefore, it
started to promote its product with the strategy of sales-revenue
maximization instead of profit maximization. What will be the price-
output combination and total profit and maximum total revenue under
the conditions of sales revenue maximization?
The shareholders of the company did not like market share capture
strategy (sales-revenue maximization) followed by the management.
The shareholders showed strong dissatisfaction against the management
in its Annual General Meeting. They argued that management should
not be given opportunities for free play in the company. The
shareholders' meeting consensually decided to put restriction with
minimum profit of Rs 22. Under this condition, what is the price (P),
output (Q) and total revenue? If fixed cost of the company decreased by
4, what would be the zeffect on price, output and profit under the
objective of profit maximization?

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