Roll Number:

Thapar University, Patiala

School of Humanities & Social Sciences
End Semester Examination
B: E. (Fourth Year): Semester-VII Course Code: UHU-081
(ECE,EIC & ELE) Course Name: Engineering Economics

December 9. 2016 Friday, 14.00 —17.00 Hrs

Time: 3 Hours, M. Marks: 100 Name Of Faculty:
SCB,RKS,ANS,KW,SCH & SD

Instruction: Attempt all question in proper sequence.

Q1 (a) What do you mean by capital budgeting? Discuss the importance of capital budgeting. (6)
(b) The company Hitech India limited is interested to undertake either project P or Q- (2+6+2)
to expand its existing manufacturing operation. The following information are related
Two projects (P) & (Q).
You are required to calculate :
Year 0 1 2 3 4 5
Expected Net Project P (Rs.150000) 30000 60000 80000 60000 30000
Cash Flow
Project Q (Rs.150000) 90000 60000 30000 20000 10000
I.Payback period of both the projects
II. NPV (at 15%) and IRR of both the projects
III.Rank the above projects with all three methods
Q2 (a) What is inflation? What are the prime causes of inflation? Discuss in detail fiscal and (6)
monetary measures to control inflation.
(b) From the data given below, calculate GDP using Income approach and expenditure (6)
approach.
Sale of Rice 50000 Kg 50/- per kg
Sale of Wheat 60,000 Kg 20 per Kg
Sale of sugar 25000 Kg 40/- per kg
Other sales 100000kg 30/- per kg
Wages paid 5/- per kg for all items
Rent paid 4 per kg for all items
Interest paid 3% of sales
Q3 (a) What do you mean by price discrimination? Discuss the necessary condition for price (6)
discrimination. Elaborate the different degrees of price discrimination.
Red Company sells its product in two separable and identifiable markets. The company's total (6)
cost equation is
TC = 6 + 10Q
The demand equations for its product in the two markets are
Q1 = 10 - (0.2) P1 & Q2 = 10 - (0.2)P2 where Q = Q1 + Q2.
I. Assuming that the second-order conditions are satisfied, calculate the profit maximizing
price and output level in each market.
II. Verify that the demand for Red Company's product is less elastic in the market with the
higher price.
III. Give the firm's total profit at the profit-maximizing prices and output levels.
Q4 (a) In contrast to perfect and monopolistic competition, oligopolistic market structures are (6)
characterized by interdependence in pricing and output decisions. Explain.
(b) Suppose that International Dynamo is a contractor in the oligopolistic aerospace industry. (6)
International Dynamo faces a "kinked" demand curve for its product, which is defined by the
equations:
Q1=200-2P & Q2=60-0.4P
Suppose further that International Dynamo has a constant marginal cost MC = $50.

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 I. Give the price and output level for International Dynamo's product.
II. Based on your answer to part a, what is International Dynamo's profit?
III. Determine the range of values within which marginal cost may vary without affecting
the prevailing market price and output level.
(a) Explain some of the reasons a firm might experience economies of scale. What is the
(6)
relation between economies of scale and increasing returns to scale? Be specific.
• (6)
(b) BGJ Co has annual fixed costs of Rs. 1, 60,000, sales of 6000 units and a selling price of
100. The company has earned profit of Rs. 1,40,000
I. What is Profit Volume ratio?
11. What is the Variable Cost?
III. What's the break-even point by volume and by value?
IV. Calculate the profit next year if sales rise to the budgeted level of 7500 units.
V. Calculate the next year sales if desired profit is Rs. 2,00,000
Q.6
(a) What are the different kinds of demand elasticities? What is the importance of different (6)
kinds of elasticities in price management?
(b) In a year number of cars sold decreased by 20% during the year, prices of cars increased by
5%, per capita income declined by 2% and price of petrol increased by 10% income ( )
elasticity of demand for cars is estimated to be +1.5 and cross price elasticity of petrol and
cars is estimated to be —0.30.
I. What is the impact of decline in per capita income on the demand for cars ?
II. What is the impact of increase in price of petrol on the demand for cars ?
III. If sales decline because of increase in petrol and decrease in income are 3% and 3%
respectively, the price electricity of demand for cars would be
.7
(a) Explain the relationship between a firm's short-run production function and its short-run cost
function. (6)
(c) The total cost equation of a firm is given by the equation where TC
level of output. is total cost and Q is the (1+2+2+
TC = 5,000 + 2,000Q- 10Q2 -F 0.2503 1)
I. What is the equation for the firm's marginal cost (MC)?
II. What output level will minimize the firm's marginal cost (MC)?
III. What output level will minimize the firm's average total cost?
IV.
Calculate the average and marginal cost at the average cost minimizing output level.
.8 (a)
What do you mean by marginal rate of technical substitution? Why MRTS always
diminishes? Discuss the necessary conditions of producer equilibrium. (6)
(b) Bottling plant employs three different types of labour: unskilled manual workers,
(6)
technicians and supervisors. It has estimated that the marginal product of the last manual
worker is 200 units per week, the marginal product of the last technician is 275 units per
week and the marginal product of the last supervisor is 300 units per week. The workers earn
Rs.300, Rs.400 and Rs.500 per week respectively.
I. Is the firm using the optimal combination of inputs?
II. If not, advise the firm on how to reallocate its resources.

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