B.5
Diseconomies of scale occur when long run average cost is decreasing.
B.6
A supplementary product will be economical to produce even with a very low relative
price.
B.7
In regression analysis, the F-test is used to evaluate the explanatory power of all of
the independent variables.

3
C.
Net Present Value.
The chart at the bottom of the page shows the net present values of three
projects (A, B and C) as a function of the interest rate.
[16 Points]
C.1
Discuss the profitability of each project with respect to both the net present value and the internal
rate of return over the range of interest rates (costs of capital) shown.
C.2
Discuss the ranking of the three projects with respect to both the net present value and the internal
rate of return over the range of interest rates (costs of capital) shown.
NPV
B
NPV
C
NPV
A
-10,000
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
0.00
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
0.10
0.11
0.12
0.13
0.14
0.15
0.16
0.17
0.18
Net Present Value
Interest Rate