# IEcoS (Economic Services) Economics Paper-1: Questions 22 - 28 of 85

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## Question number: 22

» Theory of Value » Pricing under Different Market Structures » Cross-Subsidy Free Pricing and Average Cost Pricing

Appeared in Year: 2011

### Describe in Detail

What do you mean by price discrimination? Under which condition is the price discrimination profitable? Trace out the equilibrium situation under price discrimination.

### Explanation

Price discrimination is a practice wherein the buyer sells the same good at different prices to different consumers. There are three types of price discrimination. Firstly, Price discrimination of first degree is said to occur when the seller is able to sell each separate unit of the output at different price. It is also called as take it or leave

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## Question number: 23

» Theory of Production » Equilibrium of the Firm and Industry

Appeared in Year: 2013

### Describe in Detail

Why does a perfectly competitive firm keep on producing in the short run when it is incurring losses?

### Explanation

Explain also when the firm will shut down. Use suitable diagram.

In a perfectly competitive market, a firm is a price taker, that is, it can sell any amount of output at the prevailing market price. The equilibrium conditions are that MC = MR = Price and slope of MC should be greater than slope of MR. But the level of profits depends on the Average

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## Question number: 24

» Quantitative Methods in Economics » Statistical and Econometric Methods » Lorenz Curve and Gini Coefficient

Appeared in Year: 2013

### Describe in Detail

Describe Gini ‘s coefficient as a measure of inequality.

### Explanation

Lorenz curve plots the proportion of total income that is cumulatively earned by the bottom x % of the population.

If there is no income inequality, then the Lorenz curve will be a straight line called as the line of equality. A large area (A) between Lorenz curve and line of equality means a high level of inequality. A larger value of A will give a

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## Question number: 25

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

The probability of a Type I error is denoted as *α* (Greek letter *alpha*) → it is same as the significance level of the test. The probability of a Type II error is *β* (Greek letter *beta*). The two probabilities a

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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 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 the

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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 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:

To find Cournot equilibrium, we substitute firm

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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 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 is paid

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