Briefly explain the concept of the cost function.
The functional relationship between the cost of production and the output is called the cost function. It is expressed as
C = f ( Qx )
Where,
C = cost of production
Qx =units of output x produced
In other words, the output-cost relationship for a firm is depicted by the cost function. The cost function depicts the least cost combination of inputs associated with different output levels.
What is the total product of input?
Explain the relationship between the marginal products and the total product of an input.
Why does the SMC curve cut the AVC curve at the minimum point of the AVC curve?
When does a production function satisfy decreasing returns to scale?
The following table gives the total product schedule of labour. Find the corresponding average product and marginal product schedules of labour.
What is the law of diminishing marginal product?
What do the long-run marginal cost and the average cost curves look like?
What are the average fixed cost, average variable cost and average cost of a firm? How are they related?
What does the average fixed cost curve look like? Why does it look so?
What is the law of variable proportions?
What would be the shape of the demand curve so that the total revenue curve is?
(a) A positively sloped straight line passing through the origin?
(b) A horizontal line?
Explain market equilibrium.
Discuss the central problems of an economy.
What are the characteristics of a perfectly competitive market?
What do you mean by the budget set of a consumer?
From the schedule provided below calculate the total revenue, demand curve and the price elasticity of demand:
Quantity |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
Marginal Revenue |
10 |
6 |
2 |
2 |
2 |
0 |
0 |
0 |
- |
When do we say that there is an excess demand for a commodity in the market?
What do you mean by the production possibilities of an economy?
How are the total revenue of a firm, market price, and the quantity sold by the firm related to each other?
What is budget line?
Can you think of any commodity on which the price ceiling is imposed in India? What may be the consequence of price-ceiling?
Consider a market where there are just two consumers and suppose their demands for the good are given as follows:
Calculate the market demand for the good.
p |
d1 |
d2 |
1 |
9 |
24 |
2 |
8 |
20 |
3 |
7 |
18 |
4 |
6 |
16 |
5 |
5 |
14 |
6 |
4 |
12 |
How does the imposition of a unit tax affect the supply curve of a firm?
Suppose there are two consumers in the market for a good and their demand functions are as follows:
d1(p) = 20 – p for any price less than or equal to 20, and d1(p) = 0 at any price greater than 20.
d2(p) = 30 – 2p for any price less than or equal to 15 and d1(p) = 0 at any price greater than 15.
Find out the market demand function.
Suppose there was a 4 % decrease in the price of a good, and as a result, the expenditure on the good increased by 2 %. What can you say about the elasticity of demand?
From the schedule provided below calculate the total revenue, demand curve and the price elasticity of demand:
Quantity |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
Marginal Revenue |
10 |
6 |
2 |
2 |
2 |
0 |
0 |
0 |
- |
What do you mean by ‘monotonic preferences’?
A consumer wants to consume two goods. The prices of the two goods are Rs 4
and Rs 5 respectively. The consumer’s income is Rs 20.
(i) Write down the equation of the budget line.
(ii) How much of good 1 can the consumer consume if she spends her entire
income on that good?
(iii) How much of good 2 can she consume if she spends her entire income on
that good?
(iv) What is the slope of the budget line?
Questions 5, 6 and 7 are related to question 4.
Distinguish between a centrally planned economy and a market economy.
Suppose the demand and supply curve of commodity XX in a perfectly competitive market are given by:
qD =700 - p
qs = 500 + 3p for p ≥ 15
= 0 or 0 ≤ p <15
Assume that the market consists of identical firms. Identify the reason behind the market supply of commodity X being zero at any price less than Rs 15. What will be the equilibrium price for this commodity? At equilibrium, what quantity of X will be produced?