# IEcoS (Economic Services) Economics Paper-1: Questions 18 - 21 of 85

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## Question number: 18

» Theory of Value » Pricing under Different Market Structures » Peak Load Pricing

Appeared in Year: 2011

### Describe in Detail

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 number: 19

» Theory of Value » Pricing under Different Market Structures » Peak Load Pricing

Appeared in Year: 2011

### Describe in Detail

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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## Question number: 20

» Theory of Production » Duality and Cost Function, Measures of Productive Efficiency of Firms

Appeared in Year: 2011

### Write in Short

Establish mathematically the relationship between average cost (AC) and marginal cost (MC).

## Question number: 21

» Quantitative Methods in Economics » Statistical and Econometric Methods » Measures of Central Tendency and Dispersions

Appeared in Year: 2011

### Describe in Detail

In computing the correlation coefficient between two variables X and Y from 25 pairs of observations, the intermediate results are:

Later on at the time of checking it was found that two pairs of observations which should be

X | 8 | 12 |

y | 6 | 8 |

Had been incorrectly recorded as

X | 6 | 14 |

y | 8 | 6 |

Calculate the correct value of correlation coefficient.

### Explanation

**Correct values**

X | 8 | 12 |

y | 6 | 8 |

**Incorrect Values**

X | 6 | 14 |

y | 8 | 6 |

Correct

Correct

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