TUTORIAL TWO
Question One
a) Find the equilibrium level of income if the consumption function is
C = 0.8Y + 25
and planned investment is I = 17
Calculate the new equilibrium income if planned investment rises by 1 unit. (10)
b) The demand and supply functions of a good are given by
P = −1/2QD + 20
P = 1/3(QS + 10)
The government imposes a fixed tax, $α, on each good. Determine the equilibrium price and
quantity in each case when
(a) α = 5 (5)
(b) α = 10 (5)
(c) α = 2.50 (5)
Question Two
Solve the system of equations
4X1 -3X2 + 3 X3 = 8
-2X3 + 5X2 + X3 = 4
3X1 + 2X2 + 4X3 = 2
using Cramer’s rule to find X1 X2 and X3 (10)
Question Three
An investment project requires an initial outlay of $8000 and will produce a return of $17 000
at the end of 5 years. Use the
(a) net present value (3)
(b) internal rate of return (3)
methods to decide whether this is worthwhile if the capital could be invested elsewhere at
15% compounded annually. (4)
Question Four
[ ]
1 2 3
Find all the co-factors and inverse of the matrix A = 4 5 7
7 8 9
Question Five
a) Solve the system of equations
2 x 1 + 4 x 2 =16
3 x 1 - 5 x 2 = -9
using Cramer’s Rule to find x 1 and x 2
Question Six
a) Solve the system of equations
[ ][ ] [ ]
1 2 3 x1 9
−4 1 6 x 2 = −9 using Cramer’s Rule to find x 1 , x 2 and x 3
2 7 5 x3 13
b) Mrs Moyo sells dresses at $38, $25, $15, and $10 each respectively. If she sells a total of 30,
50, 100, and 17 respectively. In a matrix form, calculate the total revenue she received from the
sale of these dresses (Hint: row vector x column vector)
Question Seven
a) Given the demand function
P = 1000 − Q
i) Express TR as a function of Q and hence sketch a graph of TR against Q.
ii) What value of Q maximizes total revenue and what is the corresponding price?
b) If fixed costs are 25, variable costs per unit are 2 and the demand function is
P = 20 − Q
obtain an expression for π in terms of Q and hence sketch its graph.
i) Find the levels of output which give a profit of 31.
ii) Find the maximum profit and the value of Q at which it is achieved.
Question Eight
Find the value of x which satisfies
(a) 2(1.1)x = 200 (b) 5x = 2(3)x
(c) 3x = 7 (d) 5(2)x = 10x
Question Nine
Define the following terms
i) Co-factor
ii) Determinant
iii) Identity Matrix
iv) Inverse Matrix
v) Non-singular Matrix
vi) Singular Matrix
vii) Square Matrix
Question Ten
a) At the beginning of a year, the population of a small village is 8400. If the annual rise in
population is 12%, find the population at the end of the year.
b) Determine the rate of interest required for a principal of $500 to produce a future value of $2000
after 5 years compounded continuously.
c) Find the present value of an annuity that yields an income of $2000 at the end of each month
for 10 years, assuming that the interest rate is 6% compounded annually
d) What is the future value of an annuity of $300 payable at the end of each month for 20 years if
the money is worth 12% per annum compounded annually.
e) A principal of $10 000 is invested at one of the following banks:
(i) Bank A offers 4.75% interest, compounded annually.
(ii) Bank B offers 4.70% interest, compounded semi-annually.
For each bank, calculate the value of the investment at the end of 10 years. Which of these banks
would you recommend.
Question 11
Simplify the following expressions
√[
5 2
]
3
1 x3 y6 x6 y 7
i) (x3 y )2
6 ii) 2 4 iii) 2 3
x3 y 6 x y
