# IEcoS (Economic Services) Economics Paper-1: Questions 7 - 12 of 85

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## Question number: 7

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Appeared in Year: 2011

Essay Question▾

### Describe in Detail

Given that the average revenue curve is a rectangular hyperbola, what will be the shape of the marginal revenue curve?

### Explanation

• When the Average Revenue Curve is a Rectangular Hyperbola, it means the Total Revenue of the Monopolist will remain constant for whatever price he may fix. Mathematically, the area under a rectangular hyperbola remains the same.
• In the given diagram, the product of PQ and P1Q1 is thus the same. When total revenue is fixed, marginal revenue is zero.

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## Question number: 8

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Essay Question▾

### Describe in Detail

Discuss cross elasticity of demand. Based on such definition, how can you distinguish between substitute and complementary goods?

### Explanation

Definition:

The measure of responsiveness of the demand for a good towards the change in the price of a related good is called cross price elasticity of demand. It is always measured in percentage terms.

Cross Elasticity of demand describes the change in demand of one good in response to the change in the price of another good. It is given by the rat

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## Question number: 9

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Appeared in Year: 2011

### Write in Short

Consider a linear demand function where q = quantity demanded, p. = price per unit and . Find out the average and the marginal revenue and draw the diagram.

## Question number: 10

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Appeared in Year: 2011

Essay Question▾

### Describe in Detail

Consider the utility function where and are the quantities of two commodities on which the consumer spends his monthly income Rs. 5,000. If the price per unit of and be 50 and 20 respectively, find out the optimal quantities of and ?

### Explanation

Utility function is given as follows:

MU of is

MU of is

• At the target point E, slope of indifference curve (IC) given by MRS (marginal rate of substitution)

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## Question number: 11

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Appeared in Year: 2011

Essay Question▾

### Describe in Detail

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 as

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## Question number: 12

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Appeared in Year: 2011

Essay Question▾

### Describe in Detail

Define income effect, substitution effect and price effect of any change in price. Show that the price effect can be decomposed into the income effect· and the substitution effect.

### Explanation

• Substitution effect means the change in the demand of a good due to a change in the rate of exchange between two goods (relative prices) holding the purchasing power constant. On the other hand, Income effect is the change in the demand due to a change in the real income while the relative prices are held constant.

• Price effect is the sum of substit

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