IEcoS (Economic Services) Economics Paper-1: Questions 29 - 33 of 85

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Question number: 29

» Theory of Consumer's Demand » Marginal Utility and Demand

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Appeared in Year: 2013

Essay Question▾

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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

Differentiating TR function, we get:

Question number: 30

» Theory of Production » Forms of Production Functions

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Appeared in Year: 2013

Essay Question▾

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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:

  • How the firms will divide the total output among themselves? Since the firms have different co

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Question number: 31

» Theory of Value » Pricing under Different Market Structures » Marginal Cost Pricing

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Appeared in Year: 2013

Essay Question▾

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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:

    Lerner’s M

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Question number: 32

» Theory of Consumer's Demand » Cardinal Utility Analysis

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Appeared in Year: 2013

Essay Question▾

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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 similar

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Question number: 33

» Theory of Consumer's Demand » Duality and Indirect Utility Function and Expenditure Function

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Appeared in Year: 2013

Essay Question▾

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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:

At equilibrium:

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