How does the imposition of a unit tax affect the supply curve of a firm?
A unit tax is the tax imposed on per unit of the output sold. Due to the imposition of unit tax, the cost of production per unit of output increases, which ultimately increases the marginal cost. Consequently, the LMC curve will shift leftward upward and as the supply curve is a portion of LMC, so the supply curve will also shift leftward upward. Let us understand the effect of imposition of unit tax through an example. Suppose that a firm is facing the price OP1. LAC1 and LMC1 are the long run average cost curve and long run marginal cost curve respectively. Also assume that the government has imposed a unit tax of Rs k per unit of output produced. Now, this will rise the firm's LAC and LMC, as the firm needs to pay Rs k extra on each output produced. Consequently, LMC1 and LAC1 will shift leftward upwards to LMC2n and LAC2. The magnitude of shift is equal to Rs k. As the supply curve is a part of LMC, it will also shift leftward from S1 to S2 , due to the imposition of the tax. Consequently, the firm will now supply lesser units of output.
What is the supply curve of a firm in the long run?
The market price of a good changes from Rs 5 to Rs 20. As a result, the quantity supplied by a firm increases by 15 units. The price elasticity of the firm’s supply curve is 0.5. Find the initial and final output levels of the firm.
A firm earns a revenue of Rs 50 when the market price of a good is Rs 10. The market price increases to Rs 15 and the firm now earns a revenue of Rs 150. What is the price elasticity of the firm’s supply curve?
Distinguish between a centrally planned economy and a market economy.
A consumer wants to consume two goods. The prices of the two goods are Rs 4
and Rs 5 respectively. The consumer’s income is Rs 20.
(i) Write down the equation of the budget line.
(ii) How much of good 1 can the consumer consume if she spends her entire
income on that good?
(iii) How much of good 2 can she consume if she spends her entire income on
that good?
(iv) What is the slope of the budget line?
Questions 5, 6 and 7 are related to question 4.
What is the relation between market price and average revenue of a price-taking firm?
What is budget line?
Suppose there are 20 consumers for a good and they have identical demand functions:
d(p)=10–3pd(p)=10–3p for any price less than or equal to 103103 and d1(p)=0d1(p)=0 at any price greater than 103.
Suppose your friend is indifferent to the bundles (5, 6) and (6, 6). Are the preferences of your friend monotonic?
Suppose a consumer’s preferences are monotonic. What can you say about her preference ranking over the bundles (10, 10), (10, 9) and (9, 9)?
How does an increase in the price of an input affect the supply curve of a firm?
Will a profit-maximising firm in a competitive market ever produce a positive level of output in the range where the marginal cost is falling? Give an explanation.
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?
What conditions must hold if a profit-maximising firm produces positive output in a competitive market?
What do you understand by normative economic analysis?
The following table shows the total revenue and total cost schedules of a competitive firm. Calculate the profit at each output level. Determine also the market price of the good.
Quantity Sold | TR (Rs.) | TC (Rs.) | Profit |
---|---|---|---|
0 1 2 3 4 5 6 7 |
0 5 10 15 20 25 30 35 |
5 7 10 12 15 23 33 40 |
How are equilibrium price and quantity affected when income of the consumers
a) Increase
b) Decrease
List the three different ways in which oligopoly firms may have.
What is budget line?
There are three identical firms in a market. The following table shows the supply schedule of firm 1. Compute the market supply schedule.
Price (Rs.) | SS1 (units) |
---|---|
0 1 2 3 4 5 6 7 8 |
0 0 2 4 6 8 10 12 14 |