Business Economics Question Paper
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NITIE, MUMBAI 400 087
I MODULE ENDING EXAMINATION
PGDIM XIth BATCH
EC01 BUSINESS ECONOMICS
Date: 23 September 2004
Time: 9.30 am to 12.30 am Maximum marks: 60
Instructions: Attempt any three questions out of four. All questions carry equal marks. Start each answer on a fresh page. Parts of the question must be answered together. Use appropriate tables, diagrams, equations to support your answers. Assume suitable assumption wherever necessary.
Q 1(a) Mrs. Palekar has Rs 1 million, which she must allocate between Indian government securities and common stocks. If she invests it all in the Indian government securities, she will receive a return of 5%, and there is no risk. If she invests it all in common stock, she expects to receive a return of 10%, and there is a considerable risk. If she invests half in Indian government securities and half in common stocks, she expects to receive a return of 7.5%, and there is some risk. Investors differ in how much risk they will accept in order to obtain a higher expected return i) Capture this situation in the indifference curve diagram and show that the positively sloped indifference curves (unusual) reflect the satisfaction levels of an investor from expected return and extent of risk from all possible allocations of Rs 1 million between these two types of securities. ii) Why do these indifference curves and constraint slope upward to the right? How should this investor allocate Rs 1 million between Indian government securities and common stocks?
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Q 1(b) Sleek Furniture produces 1,000 wood cabinets and 500 wood desks per year, the total cost being Rs 15,000. If the firm produced 1,000 wood cabinets only, the cost would be Rs 12,000. If the firm produced 500 wood desks only, the cost would be Rs 8,000. i) Calculate the degree of economies of scope. ii) Why do economies of scope exist and what is their significance in managerial decision-making?
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Q 1(c) In late 1991, two firms,
NITIE, MUMBAI 400 087
I MODULE ENDING EXAMINATION
PGDIM XIth BATCH
EC01 BUSINESS ECONOMICS
Date: 23 September 2004
Time: 9.30 am to 12.30 am Maximum marks: 60
Instructions: Attempt any three questions out of four. All questions carry equal marks. Start each answer on a fresh page. Parts of the question must be answered together. Use appropriate tables, diagrams, equations to support your answers. Assume suitable assumption wherever necessary.
Q 1(a) Mrs. Palekar has Rs 1 million, which she must allocate between Indian government securities and common stocks. If she invests it all in the Indian government securities, she will receive a return of 5%, and there is no risk. If she invests it all in common stock, she expects to receive a return of 10%, and there is a considerable risk. If she invests half in Indian government securities and half in common stocks, she expects to receive a return of 7.5%, and there is some risk. Investors differ in how much risk they will accept in order to obtain a higher expected return i) Capture this situation in the indifference curve diagram and show that the positively sloped indifference curves (unusual) reflect the satisfaction levels of an investor from expected return and extent of risk from all possible allocations of Rs 1 million between these two types of securities. ii) Why do these indifference curves and constraint slope upward to the right? How should this investor allocate Rs 1 million between Indian government securities and common stocks?
5
Q 1(b) Sleek Furniture produces 1,000 wood cabinets and 500 wood desks per year, the total cost being Rs 15,000. If the firm produced 1,000 wood cabinets only, the cost would be Rs 12,000. If the firm produced 500 wood desks only, the cost would be Rs 8,000. i) Calculate the degree of economies of scope. ii) Why do economies of scope exist and what is their significance in managerial decision-making?
5
Q 1(c) In late 1991, two firms,