Sample Economics Exam Paper

Instructions

Instructions
This Paper Consists Of Five Questions. 
You Must Attempt Any Three Questions. 
All Questions Are Marked Out Of 100. 
Read All Questions Carefully Before Answering. 
You Are Not Permitted To Do An External Researcher; The Paper Must Be Answered With Your Knowledge On The Subject. 
No Reference
Be Careful With Plagiarism

Question One

Oligopoly is described as a marketplace where there are a small number of dominant players.

a. Give examples of three industries that you would consider to be oligopolies and explain why.
b. Efforts of oligopolistic firms to impact the demand for their product (other than price) are called non-price determinants of demand. Detail five (5) non-price        determinants of demand, and with reference to the price elasticity of demand, explain those non-price determinants.

c. Game Theory is often discussed in reference to how firms in an oligopoly make decisions. Give a very brief explanation of your understanding of game theory      using an example from real life to demonstrate that understanding.

Question Two

Assume the supply and demand functions for “Independent Coffee” brand are as follows:

Qs = -8000 + 2000p     Qd = 14000 – 2000p

a. Accurately draw the supply and demand curve for this brand, labeling all aspects including equilibrium.

b. Comment on the meaning of that equilibrium in real terms.

c. If the price changes from €1 per unit to €3 euro unit there is a reduction in the demand, calculate that reduction in demand.

d. Calculate the PED for Independent Coffee between the two price points in part c above. Discuss what that resulting detail tells you about the relative elasticity of demand for this coffee brand. Show calculation.

Question Three

a. Complete the table above filling in all cells.

b. Draw a graph that clearly shows the general shape of following curves: 
MC
AVC
ATC

c. Demonstrate your knowledge of core economics laws by explaining the shape of each of these curves.

Question Four

Assume that Ireland is a small open economy with relatively high taxation. The Irish government has recently committed to a ramped-up program of public investment to build houses to finally overcome the housing shortages.

a. Given the following data, what would be the effect of this investment (€4 billion) on national income? Show the formula and indicate any assumptions you have made.

Marginal Propensity to Save = 0.15 
Marginal Propensity to Import = 0.45 
Marginal Propensity to Tax = 0.25

b. Given your answer to (a) above, if the main goal of the government in undertaking this housing investment was to stimulate the economy, comment on how        successful or otherwise this might be and why.

c. Apply your understanding of supply and demand to the housing shortages in Ireland. Demonstrate some likely outcomes to supply and demand of houses as      a result of this significant investment in housing in Ireland.

Question Five

In addition to the revenue earned from movie tickets, cinemas earn significant revenue from concession stands. Across the industry, concessions account for about 20% of total sales and about 40% of a cinema’s profit.

One cinema in South Dublin has tracked its concession sales and realises that it is underperforming. Only about 12% of its total sales are in concessions in the last full year, and they plan to make an investment to improve on that performance.

The proposal for your consideration is an investment of €325,000 in a new concession stand.

The following facts are also relevant about the cinema in question:

Total Sales last year: €4.2 million (3.7 million movie tickets, €500,000 concession sales)
Profit last year from total operations: €500,000 (380,000 from movie tickets, €120,000 from concessions)

Management argue that if they can at least hold ticket sales as they are, and bring concessions up to industry standard, then this investment will pay for itself within 3 years. Management propose to depreciate this asset over 5 years, after which they expect to need to refurbish the concession areas again with no residual value from the current proposed concession. (State any assumptions you make).

a. Do you agree with the management team that this project will pay for itself in 3 years? Explain in detail your answer.

b. Calculate the NPV for the planned refurbishment of the concession facilities assuming an IRR of 9% over its five-year life.
c. Would you recommend pursuing this project?

d. What other factors or risks not detailed do you think management should consider in making this decision?