IEcoS (Economic Services) Economics Paper1: Questions 31  37 of 85
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Question number: 31
» Theory of Value » Pricing under Different Market Structures » Marginal Cost Pricing
Appeared in Year: 2013
Describe in Detail
What is monopoly power? Give an expression for measuring it.
Explanation

Monopoly power means the amount of discretion which a producer or seller possess in regard to the framing of his price and output policy. Thus, monopoly power indicates the degree of control which a producer or seller wields over the market segment he is engaged in. There are various measures of monopoly power, one of which is as follows:
Lerne
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Question number: 32
» Theory of Consumer's Demand » Cardinal Utility Analysis
Appeared in Year: 2013
Describe in Detail
Cardinal utility approach and ordinal utility approach to demand suggest same decision rule for the optimizing consumer (which one? ). Yet, latter approach is preferred over former. Why? (Section B)
Explanation

Both these analyses are fundamentally different but have the same decision rule Both these analyses assume that the consumer is rational and tries to maximize utility. The assumption of indifference curve analysis that the consumer tries to reach the highest possible indifference curve and thus seeks to maximize his level of satisfaction is simi
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Question number: 33
» Theory of Consumer's Demand » Duality and Indirect Utility Function and Expenditure Function
Appeared in Year: 2013
Describe in Detail
Given utility function and budget constraint, derive the indirect utility function. (Section A)
Explanation
The indirect utility function takes the value of the maximum utility that can be achieved by spending the given budget on the consumption goods with given prices. The indirect utility function can be found as follows:
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Question number: 34
» Theory of Consumer's Demand » Cardinal Utility Analysis
Appeared in Year: 2013
Describe in Detail
Describe Von Neuman and Morgenstern utility index. Is this index unique? Explain (Section B)
Explanation

Neumann and Morgenstern gave a method of cardinally measuring expected utility from win and prizes. On the basis of such a cardinal utility index, rational decisions are made by individuals in case of risky situations. Thus, NeumannMorgenstern method seeks to construct a utility number, NM utility index of the marginal utility of money which a
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Question number: 35
» Theory of Production » Duality and Cost Function, Measures of Productive Efficiency of Firms
Describe in Detail
Can the threat of a price war deter entry by potential competitors? What actions might a firm take to make this threat credible? Give example. (Section C)
Explanation
Such a threat is not supposed to be credible as both the incumbent and the potential entrant know that normally, a price war will leave both worse off. Thus, the incumbent must make his or her threat of a price war believable by signaling to the potential entrant that a price war will result if entry occurs. There are a few actions that a firm mi
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Question number: 36
» Theory of Production » Laws of Return, Returns to Scale and Return to Factors of Production
Describe in Detail
Show that CobbDouglas production function, where symbols have usual meaning, exhibits constant returns to scale but diminishing returns to a factor of production.
Explanation
The sum of the exponents of L and K shows the returns to scale, since , the produce function exhibits constant returns to scale.
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Question number: 37
» Quantitative Methods in Economics » Statistical and Econometric Methods » Least Square Methods and Other Multivariate Analysis
Appeared in Year: 2013
Describe in Detail
State and explain the assumptions for applying ordinary least squares (OLS) method to two variable linear regression model:
(Section B)
Explanation
Assumptions of OLS regression
(1) The linear regression model is “linear in parameters” when the dependent variables Y is a linear function of independent variables and error term, the regression is linear in parameters and not necessarily linear in X.
(2) There is random sampling observation. The sample taken for re
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