(Pokhara University Affiliate)

END TERM EXAMINATION

Level: Master (Fall Semester) Year: 2020
Programme: MBA/MBA Finance Full Marks: 100
Trimester: I Pass Marks: 60
Course: Economic Analysis for Business Time: 4 hrs.
Candidates are expected to answer the question in their own words as far as practicable. The figures in the margin indicate full
marks.
Instructions to students:
➢ Read the questions carefully and confine your responses to an analysis of the questions as written.
➢ You have 4 hours to complete your exam and 1 hour to submit your scanned answer sheets in College MIS system in PDF
Format.
➢ The answer script should be handwritten by the examinee himself/herself. If found to be written by others, typed on a
computer, carbon copied, copied from a book, or any other method used, such answer sheets will be automatically discarded
➢ The scanned size of the answer sheet should not exceed more than 20 MB and should be compulsorily in pdf format
➢ Upload your scanned answers in College MIS system in respective subject.
➢ Write page numbers on each pages of your answer sheets.
➢ Write your name/ semester or Trimester/ and roll number on each answer sheets.
➢ Please leave 1 inch margin on both left side as well as right side of your answer sheets.
➢ This is time bound open book examination therefore candidates have to submit the answer sheets on defined time frame.

Section A
Attempt any TWO questions: (2×20= 40)

1. The following relations describe monthly demand and supply for second hand cars.
Qd = 3000 – 10P
Qs = 1000 + 10P
Where Qd and Qs are the quantity demanded and quantity supplied in units and P is the price in
Rs.
a. Find the market equilibrium price, quantity and total revenue in this market.
b. Calculate price elasticity of demand and give suggestion to producer, whether price should be
increased or decreased.
c. To discourage the use of second hand cars, the government imposes per unit tax of Rs.50 on
buyers. Find the effect of imposition of tax on the amount that buyers pay and sellers receive
and deadweight loss caused by tax.
d. Considering the DWL effects of taxation. The government now plans to eliminate the per unit
tax plan and impose 50% consumers tax on buyers. Do you think the new plan will minimize
the DWL effect of taxation? Explain your answer numerically.
2. A cruise line has space for certain passengers on each voyage. There are two market segments: elderly
passengers and younger passengers. The demand curve for the elderly market segment is Q 1 = 750 –
4P1. The demand curve for the younger market segment is Q2 = 850 – 2P2. In each equation, Q denotes
the number passengers on a cruise of a given length and P denotes the price per day. The marginal cost
of serving a passenger of either type is $40 per person per day.
a. Assuming the cruise line can price discriminate, what is the profit maximizing number of
passengers of each type and profit maximizing price for each type of passenger?
b. If the cruise line cannot price discriminate, what is the profit maximizing number of passengers
and price for passenger?
c. Which policy of the cruise line yield more profit? Justify.
3. Define externalities. Explain, graphically the concept of positive and negative externalities. Describe
with proper example, how the private and public sector solve the problem of externalities.
 Section B

Attempt any SIX questions: (6×10 = 60)

4. “Managerial economics bridges the gap between economic theory and business practice”. Explain with
examples.
5. Separate price effect into income and substitution effect for inferior goods in case of price falls.
6. “Both tariff and quota on imports are said to create deadweight loss in the economy”. Justify this
statement with the help of diagram. Also, why is tariff preferable to quota?
7. Assume that u = (x +2)(y +1) is the utility function and Px = 2,Py = 5, are the prices of x and y respectively
and income is 51. Find the optimum purchases of x and y where by the consumer’s utility is
maximized.
8. Nepalese fashion Home has demand function, P= 20 – Q and total cost function, C = Q2 +8Q +2,
determine the optimal output(Q), price(P), total revenue(R) and total profit
a. Under profit maximization
b. Under sales-revenue maximization
c. Under sales-revenue maximization subject to the profit constraint of Rs.10
9. “Managers maximize their own utility function subject to profit constraints”. Discuss in the light of
theories of firm.
10. Write short notes on (any two): 2 x5 = 10
a. Positive and normative economics
b. Opportunity cost
c. Kinked demand curve model