Optionals IAS Mains Economics: Questions 1 - 6 of 216

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Question 1

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Appeared in Year: 2011 (IEcoS)

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Short Answer▾

Define and distinguish between the normal profit and the super-normal profit under perfect competition. In the short run, find out graphically the amount of profit corresponding to the equilibrium without using the average cost curve.

Question 2

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Appeared in Year: 2011 (IEcoS)

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Essay▾

How can you get the wage offer curve and the supply curve of labor? How can you justify the backward bending supply curve of labor?

Explanation

Wage Offer curve is a curve which shows the number of hours of labor a worker puts in at various levels of wage rate. The wage offer curve has Money income on the Y axis and number of hours of labor on the Y axis. The wage offer curve is shown in the diagram below – Figure

(a) Wage Offer Curve

Graph Shows the Wage Offer Curve

As shown in the diagram, …

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Question 3

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Appeared in Year: 2011 (IEcoS)

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Essay▾

In game theory, comment on the terms ‘maxi-min’ and ‘mini-max’ .

Explanation

  • Maxi-min strategy is the conservative approach in which a player seeks to maximize the probability of minimum profit so that the degree of risk can be reduced. In this strategy, the player finds the minimum payoff in each strategy and among these chooses the one with the highest value (maximum) . For e. g. Payoff matrix of firm I and II are given a…

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Question 4

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Appeared in Year: 2011 (IEcoS)

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Essay▾

Suppose that a monopolist faces a demand curve with price elasticity less than one. Should the monopolist adopt the policy of price increase in order to increase revenue? Comment Briefly.

Explanation

Marginal Revenue is given as: where e is the price elasticity.

Relation between Marginal Revenue, Price and elasticity

When demand is inelastic: marginal revenue will be negative. Since marginal cost cannot be negative, the monopolists profit will go down if he decides to continue to sell in the market. In this case monopolist would not be interest…

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Question 5

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Appeared in Year: 2011 (IEcoS)

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Essay▾

What is meant by excess capacity? Why is it bad? Are there any benefits of excess capacity associated with monopolistic competition?

Explanation

When a firm can increase its output and reduce its cost per unit of output but continues to produce a smaller quantity at a higher price, it has an excess capacity. This means that a firm under monopolistic competition or imperfect competition in long run equilibrium produces an output that is less than the ideal output or socially optimum level. T…

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Question 6

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Appeared in Year: 2011 (IEcoS)

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Essay▾

Define and distinguish between rent and quasi-rent. What do you mean by transfer earnings? Elucidate the statement that no economic rent -is earned when the supply of a factor is perfectly elastic.

Explanation

  • Transfer Earnings means the amount of money which any particular unit of a factor could earn in its next best alternative. They are the earnings in the next best occupation. Economic rent is the payment of a unit of a factor of production in excess of its transfer earnings. It is called so because a payment below this will cause the factor of produ…

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