Question One

$($a$)$ What is production function?

$($b$)$ Explain the law of diminishing returns.

$($c$)$ Considering the three stages of the law of variable proportion, when should rational firm produce?

Question Two

$($i$)$ What are the essential characteristics of perfectly competitive firms?

$($ii$)$ With appropriate diagram, clearly show the short$-$run profit$-$maximizing output of a perfectly competitive firm.

Question Three

$($a$)$ Explain the term "market".

$($b$)$ Write short note on the following with appropriate examples: Perfect market, Monopoly, Monopolistic Competition; Oligopoly; Duopoly; Monopsony; and Duopsony.

Question Four

Given the Cobb$-$Douglas production function: $Q=100K^{\text{@}4}{L}^{06},$ derive mathematically the output elasticities of capital $($K$)$ and labour $($ L $),$ respectively.

Question Five

$($a$)$ What is capital rationing?

$($b$)$ Holiness Nigeria Ltd is considering the selection of one of a pair of mutually exclusive investment projects. Both would involve purchases of machinery with a life span of $5$ years.

Project A would generate annual cash flows $($receipts less payments$)$ of $N200,000.$ The machinery would cost #$556,000$ and have a scrap value of $$56,000.$

Project B would generate annual cash flows of $$500,000.$ The machinery would cost $A11,616,000$ and have a scrap value of $N301,000.$

The company uses the straight line method for calculating depreciation. Its cost of capital is $15\%$ per annum. Assume that there is no inflation.

You are required to:

$($i$)$ Calculate the internal rate of return for each project.

$($ii$)$ State which project you would set for acceptance giving reason for your decision.

Question Six

Bojuri Nigeria Limited has capital of $N95,000$ available for investment in the forthcoming period. The directors decide to consider projects $P,Q$ and R only. They wish to invest only in whole projects, but surplus can be invested. Which combination of projects will produce the highest NPV at a cost of capital of $20\%?$

$\backslash$table$[[$Project$,$Investment required,PV of inflows at $20\%],[,N000,N000$