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INTERMEDIATE MICROECONOMICS – I
Answer the following Descriptive Category questions in about 500 words each. Each question carries 20 marks. Word limit does not apply in case of numerical questions.
- (a) Distinguish between substitution effect and Income effect. Make a comparison with illustration between Slusky’s approach and Hicksian approach to decompose the price effect into substitution effect and income effect.
(b) Consider a consumer with the utility function given by U(X, Y) = XY where X and Y represent the two goods of consumption priced at Px and Py, respectively. The income of this consumer is assumed Rs 120, Px = Rs. 3 and Py = Rs.1. Suppose price of good X falls to Rs. 2.50, what will be its impact on consumption quantities of both the goods.
- (a) What is the distinction between short run production function and long run production function? Explain with example and diagram the various stages of total product associated with law of variable proportions.
(b) For the given production function
Q = 4.5 K0.4 L0.7
Drive a function in the form K = f (L) for the isoquant representing an output of 54.
Answer the following Middle Category questions in about 250 words each. Each question carries 10 marks.
- Consider A Firm facing the demand schedule P = 190 – 0.6q and the total cost function
TC = 40 + 30q + 0.4q2
a) What output will maximize profit?
b) What output will maximize total revenue?
c) What will the output if the firm makes the profit of Rs. 4,760
- Given a firms’ demand schedule P = 200 – 2q and its total cost function TC = 2/3 ?3 −14?2 + 222? + 50, find out its (10)
(i) Total revenue
(ii) Marginal revenue
- Given the utility function of a consumer, U = 4 A0.5 B0.5, he spends all his income amounting Rs. 120 on the two goods A and B. Good A costs Rs. 10 a unit and B Costs Rs. 15. What combination of A and B will be purchased by him?
Answer the following Short Category questions in about 100 words each. Each question carries 6 marks.
- What is consumer’s surplus and how it is measured? Explain with illustration.
- Distinguish between utility function and expected utility function. Discuss the assumptions associated with the Von Neumann Morgenstern Utility Function.
- ‘The second fundamental theorem of welfare economics treats the concepts of efficiency and equity differently’. Explain.
- A firm faces the Average Fixed Cost function as AFC = 200x-1 and Average Variable Cost function as AVC = 0.2x2 where x represents output. Show diagrammatically what shape will its total cost function (AC) take?
- Make distinction between any three of the followings:
(i) Weak preference and strong preference
(ii) Numeraire good and non-discrete good
(iii) Homogenous function and Homothetic function
(iv) Compensating variation and Equivalent variation.
BECC105, BECC 105 ENGLISH MEDIUM