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E xplain using an appropriate model why transactions demand for money increases with square root of in come and interest rate decrease s with the square root of
1. Anuradha Sharma, a start up entrepreneur from Bareilly,
has invested Rs 80 lacs in an apparel retail store. Business
has been good, and the store shows an accounting profit of Rs
10 lacs for the last year. This profit is after taxes and after
payment of a Rs 20 lacs salary to Ms. Sharma. This salary is
less than what she could make at another job, which is about
equal to Rs 40 lacs. Considering the risk involved in the
fashion retail business post Covid'19, she believes that a 15
percent after-tax rate of return is appropriate for this type of
investment. (20 marks)
a.
Given this information, calculate the economic profit
earned by Ms Sharma.
b.
What accounting profit would the firm have to earn
in order for the firm to break even in term of economic
profit?
2. Kapoor Denims Inc. manufactures denim fabric. 20 metres
of the fabric is sold at Rs 8000. Fixed costs is Rs 20 lacs per
production period and the profit contribution is 40 percent of
price. (20 marks)
a.
Determine the BEP.
b.
Determine the Profit/loss at output of 8,000, 10,000
and 15,000 units.
C.
For the next production period, fixed costs will
increase to 30 lacs due to a major capital investment
programme, but the new and more efficient machinery will
result in a lower variable production cost so that variable cost
per metre will be reduced by 40 percent. If price is
unchanged, re-compute the profit /loss at output rate of 8,000,
10,000 and 15,000 units
In your own words, what is concept of demand
Suppose that a competitive firm’s marginal cost of producing output q is given
by MC(q) = 3 + 2q.
Assume that the market price of the firm’s product is $9.
a) What level of output will the firm produce?
b) What is the firm’s producer surplus? Please compute and illustrate graphically.
Suppose that the average variable cost of the firm is given by AV C(q) = 3 + q. Suppose that the firm’s fixed costs are known to be $3.
c) What are the variable cost ? Verify by checking the total cost function’s marginal cost !
d) Will the firm be earning a positive, negative, or zero profit in the short run?
Explain the price effect, income effect and substitution effect of a price change for a normal
commodity using suitable diagram.
Suppose the manager of a watchmaking firm is operating in a perfectly competitive market. His/her cost of production is given by C = 10+8q+2q 2 , where q is the level of output and C is total cost.
a) Which assumptions characterize a perfectly competitive market? How does this affect firms’ production ? (At which price will they supply ?) How does perfect competition affect firms’ long-run profits ?
b) If the price of watches is $20, how many watches should you produce to maximize profit?
c) Find fixed cost, average variable cost and marginal cost and sketch them in one diagram.
d) At what range of prices will the firm supply zero output ? Can you explain ?
how does a tax on a good affect the price paid by the buyer, the price received by the seller, and the quantity sold ?
1. Anuradha Sharma, a start up entrepreneur from Bareilly,
has invested Rs 80 lacs in an apparel retail store. Business
has been good, and the store shows an accounting profit of Rs
10 lacs for the last year. This profit is after taxes and after
payment of a Rs 20 lacs salary to Ms. Sharma. This salary is
less than what she could make at another job, which is about
equal to Rs 40 lacs. Considering the risk involved in the
fashion retail business post Covid'19, she believes that a 15
percent after-tax rate of return is appropriate for this type of
investment. (20 marks)
a.
Given this information, calculate the economic profit
earned by Ms Sharma.
b.
What accounting profit would the firm have to earn
in order for the firm to break even in term of economic
profit?
Suppose marginal utility of good X is 20 while its price is Rs. 4 per unit and marginal utility of Y good is 50 while its price is Rs.5 per unit .The individual to whom this information applies is spending 20 on each good .Is he maximizing his satisfaction.?
(12+6.75)
(i) eku yhft, fd oLrq X dh lhekar mi;ksfxrk 20 gS tcfd bldh dher
