MAT1092 – Midterm (60’) Code 1

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Problem 1. 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 = 50000 and the market rate r = 9%, what is the net present value of the project
Problem 2 . The prices of a good at the end of each year between 2013 and 2015 (with 2014 being the base
year) are listed in the table which also shows the annual rate of inflation:
year 2013 2014 2015
price 255 260 280
inflation 4% 6% 5%
If the index number of the real price for 2012 is 90, work out the nominal value of the price in 2012.
Problem 3. The demand function for a firm’s domestic and foreign markets are:
P1 = 40 – 5Q1
P2 = 50 – 4Q2
and the total cost function is:
TC = 30 + 30Q, where Q = Q1 + Q2.
Determine the prices needed to maximize profit with price discrimination.

MAT1092 – Midterm (60’) Code 2

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Problem 1. A firm short-run production function is given by Q = 60L 2 - L3. Find the value of L which
maximizes APL and verify that MPL = APL at this point.
Problem 2. 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. The demand function for a firm’s domestic and foreign markets are:
P1 = 40 – 5Q1
P2 = 50 – 4Q2
and the total cost function is:
TC = 30 + 30Q, where Q = Q1 + Q2.
Determine the prices needed to maximize profit without price discrimination.