Institute of Chartered Financial Analysts of India (ICFAI) University 2007 Certification Finance Economics (CFA520): - Question Paper

28. ans : (a)
cause : every firm is earning only normal profits that is the point where, marginal revenue = marginal cost.
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29. ans : (c)
cause : MRA = MC;
TRA = 50QA – QA
2
MRA = 50 – 2QA
50 – 2QA =20
QA = 15;
TRB = 30QB – 0.5QB
2;
MRB = 30 – QB;
MRB = MC;30 – QB = 20;
QB = 10;
Total output, Q = 15 + 10 = 25 units.
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30. ans : (b)
cause : Given, P = 10,000 – 20Q
TC =300,000 + 2197Q –20Q2 + Q3
TR = P.Q = 100,00Q – 20Q2
MR =10,000 –40Q
MC = 2,197 – 40Q +3Q2
MR = MC provide
10,000 – 40Q = 2,197 – 40Q + 3Q2
or 7803 = 3Q2
Q two = 2601 which provide Q = = 51
Hence the accurate ans is 51 units
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31. ans : (a)
cause : By solving the reaction functions of the firms, the industry output can be derived.
Q1 = 380 – 2Q2 (I)
Q2 = 200 – Q1 (II)
Putting the formula (II) in (I)
Q1 = 380 – two (200 – Q1)
or, Q1 = 380 – 400 + 2Q1
or, – Q1 = – 20
or, Q1 = 20.
\ Q2 = 200 – 20 = 180.
\ The equilibrium output for the industry Q = Q1 + Q2 = 20 + 180 = 200.
P = 500 – 2(200) = Rs.100.
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32. ans : (b)
cause : (a) It is not the ans as economies of scale just means advantages of large-scale production. The
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cause for tangency of price with avg. cost curve is that there is freedom of entry and exit of firms.
(b) It is the ans as freedom of entry ensures that all firms earn only normal profits while exit
ensures that the loss making firms exit the industry and the others make normal profits.
(c) It is not the ans as product differentiation is not a cause for the firms attaining normal
profits.
(d) It is not the ans as downward sloping demand curve does not in itself mean normal profits
(e) It is not the answer, as a downward sloping demand curve in itself does not mean normal
profits.
Hence the accurate ans is (b)
33. ans : (a)
cause : When a monopolist faces an upward shift in his marginal cost curve, the price of his product will
increase while the volume demanded will reduce
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34. ans : (c)
cause : The difference ranging from perfect competition and monopolistic competition is with regard to kind of
product which they produce. Producer under perfect competition produces homogeneous goods while
the producer operating under the conditions of monopolistic competition produces differentiated

Earning:   Approval pending.