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THE UNIVERSITY OF NEW SOUTH WALES

SCHOOL OF ECONOMICS
ECON1202IECON2291
QUANTITATIVE METHODS A
FINAL EXAMINATION
NOVEMBER 2004
There are SIX questions in this examination.
Attempt all six questions.
All questions are NOT of equal value.
The examination is worth a total of 65 marks.
Time allowed: 3 HOURS
Candidates may use their own calculator. It should not have an alphabetical
keyboard, it should not be a graphic, programmable or financial calculator
and hand-held computers are not allowed.
Graph paper will be provided.
All answers must be written in ink. Except where they are expressly
required, pencils may be used only for drawing, sketching or graphical work.
All working must be shown. Rounding errors will not be penalised.
This paper may be retained by the candidate.

A
B
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D
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1 [PROBLEM 1
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2 I
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4 The Healthtime Medical Centre borrows $520,000 it needs to install a new magnetic
5 ! resonance imager. Interest is charged on the loan at an effective annual rate of 12%.
6 I Equal repayments are to be made at the end of each year for the next 5 years,
7 !the first yearly repayment being made exactly one year after the loan is received.
8 I
9 I LOAN AMORTISATION TABLE
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11 ILOAN AMOUNT
520000 '
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12 iEFFECTIVE ANNUAL RATE i
-0.12
13 IOF INTEREST
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14 I NUMBER OF YEARLY
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15 I REPAYMENTS
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I YEARLY
[INTEREST PRINCIPAL
PRINCIPAL
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REPAYMENT I
iREPAID
OUTSTANDING
YEAR END OF YEAR I
BEGINNING OF YEAR
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3
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FINANCE CHARGE
271
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30 Using cell addresses as much as possible to enter the appropriate formulae into the
31 [above loan amortization table of an EXCEL spreadsheet, how would you type the
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32 iformulae to be entered in
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34 [(i) Cell B21 (to obtain the yearly repayment) ?
(1.5 marks)
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36 I (ii) Cell C21 (to obtain the interest component in the first repayment)?
1(0.5 mark)
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37 .
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-------38 ! (iii) Cell D21 (to obtain the principal repaid in the first repayment)?
(0.5 mark)
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40 I (iv) Cell E23(to obtain the principal outstanding at beginning of year 3)?
(1.5 marks)
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41 !
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42 I(v) Cell B27 (to obtain the finance charge) ?
(1 mark)
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--45 [YOU MUST WRITE YOUR ANSWERS TO THE ABOVE IN YOUR EXAM BOOKLET.
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47 i N.B. NO MARKS WILL BE AWARDED IF ANSWERS GIVEN ARE IN TERMS OF
48 INUMBERS THAT WILL ACTUALLY APPEAR IN THE SPREADSHEET.
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PROBLEM 2
(a). An individual has a debt of $ 5,000 due in 3 years with interest
charged at the rate of 5 % per annum compounded annually on this first
debt and another debt of$ 10,000 due in 4 years with interest charged
at 6 % per annum compounded annually on this second debt. She wants
to pay offthese debts by making 2 payments : the first payment now
and the second payment, which is twice the first payment, in one year's
time. If the rate of interest for these payments is 8 % per annum
compounded daily, what is the amount of the first payment? Give
your answer to the nearest dollar. (3 marks)
(b). A financial consultant offers a choice between the following 2
retirement plans, A and B, to a 25 year old person concerned about how
he will fare financially when he retires at the age of 65 years old. The
first plan A involves contributing as from now $ 3,000 per year for 10
years and then makes no further contributions after age 34, leaving the
accumulated sum alone and untouched until retirement at age 65. The
second plan B involves doing nothing until he reaches age 35 when he
starts contributing $ 3,000 per year until retirement at age 65 (a total of
30 yearly contributions). Assuming an effective annual rate of interest
of 6 % over the whole period, and supposing that all the contributions
are made at the beginning of each year, calculate the net earnings at age
65 for the 2 retirement plans. Net earnings is defined as the future or
compound amount minus the total contributions. Which of the 2 plans
A and B yields the higher net earnings? (3 marks)
(c). A manufacturing company wishes to borrow money from its
commercial bank in order to buy capital equipment costing
$ 1,000,000 which is estimated to have a productive life of 5 years
and a scrap value of $ 100,000. If such capital equipment is bought, the
company will be able to save $ 20,000 at the end of each month for 5
years. Assuming the rate of interest is 12 % per annum compounded
annually and using the net present value approach, will it be worthwhile
and profitable for the company to invest in the capital equipment or
not? (3 marks)

PROBLEM 3
(a).

(i) If A, B, C and X are all square, non-singular matrices and

[XC + B-1r l = C-1AC, find X in terms of A,B and C, showing all
the steps in your working. (1 mark)

(ii) If A =

[~

:J,

B=

[~ ~Jand C = [~

find X using result obtained in 0)

(3 marks)

(b). Using the adjoint method, find the inverse of the following matrix:

(3 marks)

(c). An export manufacturer of therapeutic mattresses to Asia has 3 types:

Deluxe, Premium and Superior, which must be cut, assembled and
finished. Each Deluxe type of mattress requires 3.2 hours of cutting, 4
hours of assembling and 1 hour of fmishing. Each Premium type of
mattress requires 4 hours of cutting, 6 hours of assembling and 1 hour
of finishing. Each Superior type of mattress requires 4.8 hours of
cutting, 8 hours of assembling and 2 hours of finishing. If the
manufacturer has 192 hours of cutting per day, 312 hours of assembling
per day and 74 hours of finishing per day, using any matrix method of
solution that you know, determine the number of mattresses of each of
the types that can be produced per day, assuming all available cutting,
assembling and finishing hours are used in the production ofthe
mattresses. (4 marks)

PROBLEM 4

Alleygrain company manufactures and sells 2 types of mobile phones, the

alpha and beta models. To manufacture the mobile phones, 3 processes
known as assembling, connecting and packaging are required. Each alpha
model needs 4 hours of assembling, 2 hours of connecting and 2 hours of
packaging whilst each beta model needs 2 hours of assembling, 2 hours of
connecting and 6 hours of packaging. The company has 700 hours of
assembling capacity per week, 500 hours of connecting capacity per week,
and 900 hours of packaging capacity per week. The company makes a profit
of$ 50 on each alpha model sold and $ 70 on each beta model sold. The
objective of the company is to maximize its profits. Assume all mobile
phones manufactured per week are all sold in the same week.
(i)

Formulate the objective function and all the constraints of the above
problem. (3 marks)

(ii)

Draw a graph marking clearly the feasible region and showing at least
one iso-objective line. (3 marks)

(iii)

Determine the number of each type of mobile phone produced in

order to maximise the profit of the mobile phone company. What is
the maximum profit? (3 marks)

(iv)

With other constraints remaining the same, what will happen to the
maximum value of the objective function if
(l)the assembling hours are increased to 800 hours? (1 mark)
(2)the connecting hours are increased to 600 hours? (1 mark)
(3)the packaging hours are increased to 1,000 hours? (1 mark)

PROBLEM 5

(a). The maximum theoretical efficiency of a given power plant is given by

H-C
E=-H
where Hand C are the absolute temperatures of the hot and cold
reservoirs respectively. Find (i) the limit ofE as C tends to Hand
(ii) the limit ofE as C tends to zero.
(1 mark)
(b). For a soccer ball manufacturer, the costs of labour and raw materials
incurred for making each soccer ball are $ 30 and $ 10 respectively.
The overhead or fixed costs are $ 20,000 per week. If more than 5,000
soccer balls are made each week, the labour costs rise to $ 45 per
soccer ball for those units in excess of 5,000 whilst the raw materials
costs remain unchanged. What is the level of production that will
minimize the average cost of production of a soccer ball? (2.5 marks)

(c). The marginal revenue function of a producer is given by

-dR = 275 -q - 0.3q 2

dq

where R represents total revenue and q = output produced

Determine the average revenue equation faced by the producer.
(1.5 marks)
(d). The inverse demand function of a product is given by
200
p = ----;=====

~6000+10q2 .

Find the elasticity of demand when p = 2. Is the demand elastic or

inelastic at this point? (2 marks)
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(e). In Aussialand, initially, there are 1,000 million dollars of paper money
in circulation. The central government decides to issue new paper
money; whenever the old paper money comes into the banks, it is
destroyed and replaced by new paper money. After only 5 weeks, 200
million dollars of new paper money are circulating in the country.
Let x millions of dollars be the amount of old paper money in
circulation at time t (in weeks). If the rate of change in x with respect to
time is proportional to x, how long will it take for 80 % of the old paper
money to be replaced by the new paper money? Give your answer to
the nearest whole number. (3 marks)

(f). A small chocolate-manufacturing company finds that the daily

production of its chocolates per worker follows limited growth with its
present resources. The upper limit of production is 500 chocolate bars
per day per worker. Currently, output per day per worker is 200
chocolate bars and in a month's time, the daily output per worker will
increase to 300 chocolate bars. What will be the daily output per
worker in 3 months' time? Give your answer to the nearest whole
number.
(3 marks)

PROBLEM 6
(a). A production function is given by Q = K~L where Q = output,
K = amount of capital used and L = amount of labour used.
(i)

Determine the marginal productivity functions for capital and

labour respectively. (1 mark)

(ii) Find all the second order partial derivatives as denoted by

a2 Q a2Q a2Q
aK 2 ' aL2 ' aKaL

(2 marks)
(iii)

Prove that when K=L, the sum of the marginal productivities is

constant.
(1 mark)

(b). The revenue, R, in dollars per square metre of cultivated ground

obtained from the sale of a crop of potatoes grown in an artificially
heated greenhouse is given by R = 5x(1-e-Y) where x is the temperature
in degrees Celsius maintained in the greenhouse and y is the amount of
fertilizer applied per square metre of cultivated ground. The cost of
heating is 0.lx2 dollars per square metre and the cost of fertilizer is 20y
per square metre. Determine the temperature and the amount of
fertilizer which will maximise the profit per square metre. You must
check the second order conditions for a maximum. (6 marks)
(c). The labour and materials used for building a rectangular container used
for shipping purposes cost $ 300 per square metre for the top and
bottom parts and $ 200 per square metre for the sides of the container.
The shipping container must have a volume of 12,000 cubic metres.
Use the Lagrange Multiplier method to determine the dimensions of
the container which will minimise the costs. What is the minimum
cost? Assume the second order conditions for a minimum are present.
(5 marks)