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Dept. of Humanities, IITD

Questions

for Minor 2

Max. Marks: 20

1. What is the relationship between MPL, APLand total output?

(1.5 marks)

2.

Which of the following factcrs of production are fixed, and which are var:able?

i i

manager er.1ployedon a contract requiringane year's notice of dismissal a shop-floorworker employed on 2 contract requiringone week's notice

a

IIi)electricity

"(1

mark)

3. Can you think of ways in which diseconomies of scale can be reduced

or removed?

4. Cumpieie the followingtable:

(1 mark)

Determining the firm's output level:-

Marginal Condition MR~ MC MR~ MC MR= MC

Firm's Decision (increase/decrease

output)

" (1 mark)

(1.5 marks)

5. What is the difference between a Firm's decision on Shut-down and Exitfromthe industry?

6. In perfect competition:

A)

all firms face the same cost curves

S)

there

is only one firm

C)

brand loyaltyis important

D)

there are a very large number of firms

(1 mark)

7. Draw the short-run equilibrium position for a perfectly competitive firm that is " making losses, the losses being insufficientto make it shut down in the short run. (2 marks) .

8. Ifnew firms~enterthe industry in tJ'1elong run, afuacted by 5u;J~II~lvIT'-ICaiprofit,describe effect on:

the likely-

(i) the industry'ssupply

(ii)the marketprice

(Hi)the level of profitearned by firms.

" (1 mark)

9. What causes the long-run supply curve to be down-sloping in a perfectly competitive market?

Explain withthe help of a diagram.

(3 marks)

If1O)Using the concepts of consumers' surplus and produce~'

l7

the impositionof an indirecttax.

surplus, illustrate the 'Nelfareeffects of (3 marks)

11. A firm uses two factors Land K, to produce a good. The production function is

X = "(KL), where x is output. The price of K is RS.3 and the amount

of Kemployed is 900

~nits,-Ih~

pri~e of L is RS.12.

a) Determine the amount of L that the firm needs to employ ifx =150 and 450.

b) What are the marginal costs of the 150thcilnd450thunits of output? "

(2 marks)

12. . A young chef is considering opening his own sushi bar. To do so, he would have to quit his

current job, which pays $20,000 a year, and take over a store building he owns and currently rents for $6,000 a year. Hisexpenses at the sushi bar would be $50,000 for food and $2,000 for gas and electricity. What is the minimum revenue he must earn per year in order for it to be worth his while to open his sushi bar?

a. $26,000

b. $66,000 7$78,000

d. $52,000

e. $72,000

(1 mark) determined by the market because

13. Prices in the perfect competition model are

a) individualfirms are large relative to the

market

and

produce

slightlydifferent goods

or services, and so have market power

b) individualfirms are large relative to the market and or services, and so have no market power.

produce

slightlydifferent goods

~ndividual

firmsare small relativeto the marketand producethe samegood or

service, and so have no market power.

d) individualfirms are small relative to the market and produce the~samegood-or service, and so have market power.

(1 mark)