-2- 4QQMN503 1. An investment company proposes two different investment plans. Plan A costs £12,000 and yields £20,000 after 8 years. Plan B costs £10,000 and yields £15,000 after 5 years. (a) Calculate the Internal Rate of Return (IRR) for each Plan. [3 marks] (b) Calculate the net present value for each Plan. [3 marks} (c) According to the IRR and the NPY, is it worth investing in either Plan? If so, which Plan? [3 marks]2. _ Differentiate the following functions with respect to x: (a) y=a(x —3)2 [4 marks] (b) y= a5 [4 marks] (© y=mn@e(t-2)*) [4 marks}A farm produces Q tonnes of wheat with the production function Q=8LiK where L denotes the hours of labour and K‘ the quantity of capital. The farm currently uses 5 units of labour and 10 units of capital and decides to reduce the level of capital to 8 units. (a) Find the increase in units of labour needed to keep output constant, (5 marks] (b) Determine the second order derivatives with respect to both labour and capital and interpret their signs. [2 marks] (c) Determine whether labour and capital are complements or substitutes the production function. (2 marks} See Next Page4. A firm's profit is given by I= (2+4Q)". Find the change in profit if production increases from 2 to 4 units [10 marks]5. A firm is a monopolistic producer of two goods G4 and Gy. Demand for Gu is given by and demand for Gy is given by Pp = 200 - 2Qp- The total cost function is given by TC = 100Q4 + 1000p + Q4 + Qi + 2Q40n. (a) Show that the firm’s profit function is 100Q 4 ~ 5Q% + 10005 — 30} - 2Q4Qn. [4 marks] (b) Show that the profit function has a maximum. Which conditions have to be met? [8 marks] (©) Find the values of Q4 and Qz that maximise the profit function and deduce the corresponding prices. [8 marks)6. Emily works 40 hours per week at £10 per hours. She spends 50% of her income to consume goods a and 6, The unit prices for a and b are £1 and £2, respectively. Her utility function is given by U = 202. (a) Write down her weekly budget constraint. [4 marks] (b) Using the Lagrangian, find the utility maximising values of x. and 2». [12 marks] (c) What is the interpretation of the Lagrange multiplier? What does it tell us in this example. [4 marks]Consider the following macroeconomic model defined by the following equations in equilibrium: 6Y; — Ya — 10/7 = 500, =2¥; + 3Y) = 1500, 2, - Ye = 0, where ¥; denotes the national income of country i (i = {1,2}) and Ij is the investment of country 1 (a) Express the system of equations in matrix form. [5 marks] (b) Find the equilibrium values of Yi, Yp and J} using Cramer’s rule. (15 marks}