# IEcoS (Economic Services) Economics Paper-1: Questions 25 - 30 of 85

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## Question number: 25

» Quantitative Methods in Economics » Statistical and Econometric Methods » Testing of Hypothesis, Simple Non-Parametric Tests

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Appeared in Year: 2013

Essay Question▾

### Describe in Detail

What are type I and type II errors in testing of a hypothesis? (Section A)

### Explanation

A Type I Error occurs when we reject a true null hypothesis (“false alarm”)

A Type II Error occurs when we don’t reject a false null hypothesis.

 Decision Reality Reject Fail to Reject true Error (Type I) Correct Decision flase Correct Decision Error (Type II)

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## Question number: 26

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Essay Question▾

### Describe in Detail

Graphically explain the expansion path of a firm taking labor and capital as inputs.

### Explanation

• Expansion path describes how the factor combination which firm the uses alter as the firm expands its level of output. An iso-cost line shows the various combinations of two factors (capital and labour) that the firm can buy with a given outlay. Iso product curves or Isoquants are curves that describe different combination of inputs which yield

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## Question number: 27

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Essay Question▾

### Describe in Detail

Consider the following duopoly. Demand is given by where the firm’s cost function are:

What is each firm’s equilibrium output and profit if they behave non-co-operatively? (Section C)

### Explanation

• In the Cournot model, firm 1 takes firm output as given and maximizes profits. The profit function them becomes:

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## Question number: 28

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Appeared in Year: 2013

Essay Question▾

### Describe in Detail

“In the long-run competitive equilibrium rewarding each input according to its marginal physical product precisely exhausts the total physical product. ” Critically examine the above statement. (Section B)

### Explanation

• Euler’s product exhaustion theorem states when since factors of production are rewarded equal to their marginal product, they will exhaust the total product. The way this proposition is solved is called the adding up problem.

• The adding up problem states that in a competitive factor market when every factor employed in the production process

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## Question number: 29

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Appeared in Year: 2013

Essay Question▾

### Describe in Detail

If the law of demand is P, where p is price and x is quantity demanded. Express price elasticity of demand, total revenue and marginal revenue as functions of x.

### Explanation

Taking log of each side, we get:

Total revenue

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## Question number: 30

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Appeared in Year: 2013

Essay Question▾

### Describe in Detail

Consider the following duopoly. Demand is given by where the firm’s cost function are:

Suppose both firms have entered the industry. What is joint profit maximising level of output? How much will each firm produce? How would your answer change if the firms have not yet entered the industry? (Section C)

### Explanation

• Setting marginal revenue to marginal cost (the MC of firm 1 since it is lower than that of firm 2) we get:

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