Explain the concepts of the short run and the long run.
Short Run: In short run, a firm cannot change all the inputs, which means that the output can be increased (decreased) only by employing more (less) of the variable factor (labour). It is generally assumed that in short run a firm does not have sufficient or enough time to vary its fixed factors such as, installing a new machine, etc. Hence, the output levels vary only because of varying employment levels of the variable factor. Algebraically, the short run production function is expressed as
Qx= f (L,K)
Where,
Qx = units of output x produced
L = labour input
K = constant units of capital
Long Run: In long run, a firm can change all its inputs, which means that the output can be increased (decreased) by employing more (less) of both the inputs − variable and fixed factors. In the long run, all inputs (including capital) are variable and can be changed according to the required levels of output. The law that explains this long run concept is called return to scale. The long run production function is expressed as
Qx= f (L,K)
Both L and K are variable and can be varied.
What is the total product of input?
Why does the SMC curve cut the AVC curve at the minimum point of the AVC curve?
Let the production function of a firm be Q=5L1/2K1/2Q=5L1/2K1/2 Find out the maximum possible output that the firm can produce with 100 units of LL and 100 units of KK.
What does the average fixed cost curve look like? Why does it look so?
What do the long-run marginal cost and the average cost curves look like?
When does a production function satisfy decreasing returns to scale?
Explain the concept of a production function
Explain the relationship between the marginal products and the total product of an input.
Why is the short-run marginal cost curve 'U'-shaped?
At which point does the SMC curve intersect the SAC curve? Give a reason in support of your answer.
What would be the shape of the demand curve so that the total revenue curve is?
(a) A positively sloped straight line passing through the origin?
(b) A horizontal line?
Explain market equilibrium.
Discuss the central problems of an economy.
What are the characteristics of a perfectly competitive market?
What do you mean by the budget set of a consumer?
From the schedule provided below calculate the total revenue, demand curve and the price elasticity of demand:
Quantity |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
Marginal Revenue |
10 |
6 |
2 |
2 |
2 |
0 |
0 |
0 |
- |
When do we say that there is an excess demand for a commodity in the market?
What do you mean by the production possibilities of an economy?
How are the total revenue of a firm, market price, and the quantity sold by the firm related to each other?
What is budget line?
Consider the demand for a good. At price Rs 4, the demand for the good is 25 units. Suppose the price of the good increases to Rs 5, and as a result, the demand for the good falls to 20 units. Calculate the price elasticity.
Explain how price is determined in a perfectly competitive market with a fixed number of firms.
Can you think of any commodity on which the price ceiling is imposed in India? What may be the consequence of price-ceiling?
Suppose there was a 4 % decrease in the price of a good, and as a result, the expenditure on the good increased by 2 %. What can you say about the elasticity of demand?
Explain why the demand curve facing a firm under monopolistic competition is negatively sloped.
How does an increase in the price of an input affect the supply curve of a firm?
Suppose a consumer can afford to buy 6 units of good 1 and 8 units of good 2
if she spends her entire income. The prices of the two goods are Rs 6 and Rs 8
respectively. How much is the consumer’s income?
Suppose the price elasticity of demand for a good is – 0.2. How will the expenditure on the good be affected if there is a 10 % increase in the price of the good?
What do you mean by substitutes? Give examples of two goods which are substitutes of each other.
Explain through a diagram the effect of a rightward shift of both the demand and supply curves on equilibrium price and quantity.