INSTRUCTIONS:
- Students should either use the downloaded paper (Microsoft Word file) or a new Microsoft Word file to write the answers under each question.
- Students should write their “name” and “registration number” at the top of first page of the Answering Document.
- Attempt all questions. Marks are mentioned at the end of each question.
- Students should use “Times New Roman” font, font size 12, and line spacing of 5 to answer the questions.
- In case of questions requiring numerical solutions, students should either use “Equation” tool available in Microsoft word or simply solve the question on plain paper, take a photo of that paper (or scan that paper) and paste it on the answering Microsoft Word document under the relevant question. (only use ‘.jpg’ format for photographs and scans)
- In case of questions requiring plotting of graphs, students should plot the graph on plain paper, take a photo of that paper (or scan that paper) and paste it on the answering Microsoft Word document under the relevant question. (only use ‘.jpg’ format for photographs and scans)
- In case of questions requiring explanations, the answer should not exceed maximum word count of 200 words.
Section ‘C’
Demand Estimation
| Question: 5 | Maximum Marks: 5 |
You are the sales manager of Suzuki dealership who wants to learn more about the effectiveness of various discounts offered to customers over the past 6 months. Following are the average negotiated prices for each month and the quantities sold of a basic model (adjusted for various options) over this period of time.
- Estimate the demand equation. (3 Marks)
- What do the regression results indicate about the desirability of discounting the price? Explain. (1.5 Mark)
Price Quantity
Month (in lakhs) (in numbers)
Jan. 12.5 15
Feb. 12.2 17
Mar. 11.9 16
Apr. 12.0 18
May 11.8 20
June 12.5 18
- What other factors besides price might be included in this equation? Do you foresee any difficulty in obtaining these additional data or incorporating them in the regression analysis? (0.5 Mark)
| Question: 6 | Maximum Marks: 4 |
A frozen food manufacturer estimated the following demand equation for its product using data from 26 supermarkets around the country for the month of May:
(2.002) (17.5) (6.2) (2.5) (0.09) (0.21)
R2 = 0.55 n = 26 F = 4.88
Assume the following values for the independent variables:
Q = Quantity sold per month
P (in rupees) = Price of the product = 500
PX (in rupees) = Price of leading competitor’s product = 600
I (in tens of rupees) = Per capita income of the standard metropolitan statistical area (SMSA) in which the supermarket is located = 5,000
A (in tens of rupees) = Monthly advertising expenditure = 10,000
M = Number of microwave ovens sold in the SMSA in which the supermarket is located = 5,000
Using this information, answer the following questions:
- Compute elasticities for each variable. (2.5 Mark)
- How concerned do you think this company would be about the impact of a recession on its sales? Explain. (0.5 Marks)
- Do you think that this firm should cut its price to increase its market share? Explain. (0.5 Marks)
- What proportion of the variation in sales is explained by the independent variables in the equations? (0.5 Mark)
Section ‘D’
Profit Maximization
| Question: 7 | Maximum Marks: 3 |
A firm’s total revenue (TR) and total cost (TC) functions are
Determine:
- Equations for marginal revenue and average revenue. (0.5 Marks)
- Equations for marginal cost and average cost. (0.5 Marks)
- The output rate that maximizes total revenue. (1 Mark)
- The output rate that minimizes average cost. (1 Mark)
- The output rate that maximizes profit. (2 Marks)
| Question: 8 | Maximum Marks: 3 |
- Following is the profit function for a firm selling two products:
Where X and Y represent output rates of products 1 and 2, respectively
- Determine the profit maximizing output rates for the two products and the profit associated with these output rates. (3 Marks)