IEcoS (Economic Services) Economics Paper1: Questions 25  30 of 85
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Question number: 25
» Quantitative Methods in Economics » Statistical and Econometric Methods » Testing of Hypothesis, Simple NonParametric Tests
Appeared in Year: 2013
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
» Theory of Production » Factors of Production and Production Function
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 isocost 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
» Theory of Production » Forms of Production Functions
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 noncooperatively? (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
» Theory of Distribution » Factor Shares and Adding up Problems
Appeared in Year: 2013
Describe in Detail
“In the longrun 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
» Theory of Consumer's Demand » Marginal Utility and Demand
Appeared in Year: 2013
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
» Theory of Production » Forms of Production Functions
Appeared in Year: 2013
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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