Microeconomics — DU Bachelor of Business Administration (Financial Investment Analysis) Previous Year Question Papers

EE±ructions for Candi±a±es All parts of each question must be done together. Attempt FIVE questions in all. (a) During peak evening hours in Mumbai, ride-hailing company "GORide" is proposing to increase its fares by 40% to manage excess demand. A recent consumer behaviour survey reveals the following data : As a consultant to Go Ride will you recommend that Go ride takes this decisionforbothgroupofcommuters?If not,whatwillyouradvicetothe companybe,assumingthatGoRideisaimingtoincreaseitsrevenuethrough this change in prices. Give reasons to support your answer. (6) (b)Aconsumerwillalwaysconsumethequantityofacommoditythatcorresponds to the point of saturation. True or false. Explain. (6) (c)Amonopolistisproducingatapointwheremarginalcostislessthanmarginal revenue. How should this firm adjust it's output to increase profits. Give reasons for your answer. (d) Average variable cost and average cost reach their minimum at the same level of output. True or False. Explain. (6) (e) If price exceeds average variable cost but is smaller than average cost at the bestlevelofoutput,thanaperfectlycompetitiveflrmshouldstopproduction in the short run as it is making losses. True or False. Explain. (6) ® Draw an isoquant map for a firm that can always trade 5 units of labour for 1 unit of capital and still keep it's output constant. (6) 2. (a) The market for cab rides is definedby the following equations : QD= quantity of rides demanded (in thousands) Qs = quantity of rides supplied (in thousands) (i) Find the equilibrium quantity and equilibrium price in this market. (ii) Due to a sharp increase in fuel prices, cab companies face higher operational expenses. Explain with diagrams how this will impact the market for cab rides. (b) In a rural Indian village, rice is the main staple food for most low-income households. When the price of rice falls from { 40/kg to € 30/kg, you would expect people to buy more rice. However, surveys reveal that some of the poorest families actually buy less rice and spend more on vegetables, lentils, and spices instead. At the same time, middle-income households' buy more rice when the price falls, as expected. Using the income and substitution effect, explain with diagrams the difference in the behaviour ,of the two groups. (10) 3. (a) A monopolist is deciding how to allocate it's output between two geographically separated markets with the following demand function : The total cost of the monopolist is given by Where P], P2 are prices and Q£, Q2 are the quantities in the two markets respectively. How much output should this monopolist sell in each market and what price? How much profit will he make? (10) (b) Explain with the help of diagrams how a reduction in marginal cost might not lead to change in output and price under oligopoly. (8) 4. (a) With the help of diagrams explain the relationship between short run and long run average cost curves. Why is the long run average cost curve called envelope curve? (10)