RTU Managerial Economics & Financial Accounting Solutions
๐Ÿ“„ RTU Managerial Economics & Financial Accounting Solved Paper 2022
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Rajasthan Technical University (RTU) Solutions

B.Tech. III-Semester (April/May 2022) | Managerial Economics and Financial Accounting (3E1200)

PART - A (Short Answer Questions - 2 Marks Each)
Q1. What is dividend payout ratio?
The percentage of net income paid to shareholders as dividends, calculated as (Dividends Per Share / Earnings Per Share) * 100.
Q2. Define oligopoly.
A market structure dominated by a few large firms selling homogeneous or differentiated products with high mutual interdependence.
Q3. Relationship between AC and MC with a diagram.
When MC < AC, AC falls; when MC = AC, AC is at its minimum; when MC > AC, AC rises. MC cuts AC from below at its minimum point.
Cost ^ | AC | \ / | \MC / |----\-/--- Minimum AC +------------> Output
Q4. Define production possibility curve (PPC).
A curve showing alternative maximum combination pairs of two goods that an economy can produce using given technology and full resources.
Q5. Explain the law of demand.
States that, keeping other factors constant (ceteris paribus), quantity demanded varies inversely with the price of the commodity.
Q6. Consumer goods vs Capital goods & Final goods identification.
Consumer goods satisfy human wants directly (e.g., milk); capital goods aid in producing other goods (e.g., machinery). Both are final goods if purchased by ultimate users.
Q7. Define price elasticity of supply.
Measures the degree of responsiveness of quantity supplied of a commodity to a change in its unit price.
Q8. What is fund flow statement?
A statement analyzing changes in a firm's working capital position between two balance sheet dates by showing sources and uses of funds.
Q9. Distinguish between stock and flow with examples.
Stock is measured at a specific point in time (e.g., wealth, bank balance on 31st March); Flow is measured over a period of time (e.g., income per month).
Q10. Define production function.
The mathematical or technical relationship between physical inputs used and the maximum output obtained per period.
PART - B (Analytical Questions - 4 Marks Each)
Q1. "Economics is an art." Explain basic economic activities.
Economics is an art because it applies theoretical laws to solve real-world problems like allocation, inflation, and unemployment.

Basic Economic Activities:
  • Production: Creating utility by converting inputs into goods.
  • Consumption: Utilizing goods to satisfy human wants.
  • Exchange & Distribution: Marketing output and allocating earnings among factors of production.
Q2. Explain three factors leading to 'Decrease in Demand'.
Decrease in demand means lower quantity demanded at the same price (leftward curve shift):
  • Fall in Consumer Income: Decreases purchasing power for normal goods.
  • Price Fall of Substitute Goods: Consumers switch to cheaper alternative goods.
  • Unfavorable Tastes/Preferences: Shift away from the product due to trends or seasons.
Q3. Relationship between ATC, AVC, and MC with an example.
ATC = AVC + AFC. MC affects both AVC and ATC, intersecting both at their minimum points.
Example Table (TFC = 20): Q | AFC | AVC | ATC (AVC+AFC) | MC 1 | 20 | 30 | 50 | 30 2 | 10 | 20 | 30 | 10 3 | 6.7 | 18 | 24.7 | 14 Key: Gap between ATC and AVC decreases as AFC falls with higher output.
Q4. "Perfect competition seller is a price taker; monopoly is a price maker."
  • Perfect Competition (Price Taker): Large number of sellers producing identical goods forces firms to accept industry market price (horizontal elastic demand).
  • Monopoly (Price Maker): Single seller with no close substitutes controls entire market supply and fixes price independently (downward sloping demand).
Q5. Cash flow from operating activities: Direct vs Indirect method.
  • Direct Method: Calculated by subtracting operating cash payments (suppliers, wages) directly from cash receipts (customer sales).
  • Indirect Method: Begins with net profit before tax and adds back non-cash expenses (depreciation) while adjusting for working capital changes.
PART - C (Detailed Solutions - 10 Marks Each)
Q1. Financial Ratio Analysis for Fantasy Ltd.
Extracts from Trading & P&L A/c: - Gross Profit = ₹2,00,000 | Net Sales = ₹5,00,000 | Net Profit = ₹84,000 - Cost of Goods Sold (COGS) = Sales - Gross Profit = 5,00,000 - 2,00,000 = ₹3,00,000 - Average Stock = (Opening Stock + Closing Stock)/2 = (76,250 + 98,500)/2 = ₹87,375 - Operating Expenses = Admin (1,01,000) + Selling (12,000) = ₹1,13,000 Ratio Calculations: 1. Gross Profit Ratio = (Gross Profit / Sales) * 100 = (2,00,000 / 5,00,000) * 100 = 40% 2. Expenses Ratio = (Operating Expenses / Sales) * 100 = (1,13,000 / 5,00,000) * 100 = 22.6% 3. Operating Ratio = [(COGS + Operating Expenses) / Sales] * 100 = [(3,00,000 + 1,13,000) / 5,00,000] * 100 = 82.6% 4. Net Profit Ratio = (Net Profit / Sales) * 100 = (84,000 / 5,00,000) * 100 = 16.8% 5. Stock Turnover Ratio = COGS / Average Stock = 3,00,000 / 87,375 = 3.43 times
Q2. What are capital budgeting techniques? Explain with example.
Capital budgeting evaluates long-term investment proposals to ensure optimal allocation of capital.

Key Techniques:
  • Payback Period: Time required to recover initial investment.
  • Net Present Value (NPV): Difference between present value of cash inflows and outflows.
  • Internal Rate of Return (IRR): Discount rate at which NPV equals zero.
Example (Payback Period): Investment = ₹1,00,000 | Annual Cash Inflow = ₹25,000 Payback Period = Initial Investment / Annual Inflow = 1,00,000 / 25,000 = 4 Years
Q3. Price Elasticity of Demand Numerical Analysis
Given Data: Initial Price (P1) = ₹20 | Initial Quantity (Q1) = 800 units Price Rise (Delta P) = +₹5 | New Price (P2) = ₹25 Fall in Quantity = 20% of 800 = 160 units New Quantity (Q2) = 800 - 160 = 640 units Percentage Method: % Change in Price = (Delta P / P1) * 100 = (5 / 20) * 100 = 25% % Change in Quantity Demanded = -20% Price Elasticity (Ed) = (% Change in Q) / (% Change in P) = -20% / 25% = -0.8 (|Ed| = 0.8) Conclusion: Demand is INELASTIC because |Ed| < 1. Reason: The percentage change in quantity demanded (20%) is smaller than the percentage change in price (25%).
Q4. Cost Schedule Calculation (AFC = 20 at Q = 3)
Given: AFC at Q = 3 is 20. Therefore, Total Fixed Cost (TFC) = AFC * Q = 20 * 3 = 60 (Constant for all units). TVC = AVC * Q TC = TFC + TVC ATC = TC / Q MC = TC(n) - TC(n-1)
Output (Q) AVC (Rs.) TFC (Rs.) TVC (Rs.) TC (Rs.) ATC (Rs.) MC (Rs.)
1 30 60 30 90 90.00 30
2 28 60 56 116 58.00 26
3 32 60 96 156 52.00 40
Q5. National Income estimation by Income Method & Precautions
Steps Involved:
  • Identify production units and classify factor earnings into Compensation of Employees, Operating Surplus (Rent + Interest + Profit), and Mixed Income.
  • Sum up factor payments to compute Net Domestic Product at Factor Cost (NDP_fc).
  • Add Net Factor Income from Abroad (NFIA) to arrive at National Income (NNP_fc).
Two Precautions:
  • Exclude transfer payments (e.g., pensions, unemployment allowance) as no productive activity occurs.
  • Exclude windfall gains (e.g., lotteries) and capital gains from sale of second-hand goods.
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