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F-2,Block, Amity Campus

Sec-125, Nodia (UP)
India 201303
ASSIGNMENTS
PROGRAM:
SEMESTER-I
Subject Name
Study COUNTRY
Permanent Enrollment Number (PEN)
Roll Number
Student Name

:
:
:
:
:

Microeconomics for Business

Somalia
Mohamed Abdullahi Khalaf

INSTRUCTIONS
a) Students are required to submit all three assignment sets.
ASSIGNMENT
Assignment A
Assignment B
Assignment C

DETAILS
Five Subjective Questions
Three Subjective Questions + Case Study
45 Objective Questions

MARKS
10
10
10

b) Total weightage given to these assignments is 30%. OR 30 Marks

c) All assignments are to be completed as typed in word/PDF.
d) All questions are required to be attempted.
e) All the three assignments are to be completed by due dates (specified from
time to time) and need to be submitted for evaluation by Amity University.
f) The evaluated assignment marks will be made available within six weeks.
Thereafter, these will be destroyed at the end of each semester.
g) The students have to attached a scan signature in the form.

Date: 22/11/2010

Signature:

( ) Tick mark in front of the assignments submitted

Assignment A

Assignment B

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Assignment C

Assignment A
Five subjective questions (3*5 =15 marks)
Q1 Explain the relationship between different determinant of demand and the
quantity demanded.
Answer:
determinant of demand: are factors affecting the demand curve, a fundamental
factor influencing buyers' demand for goods and services. There are six determinants
of demand: price if the commodity, price of related goods, income of the consumer,
tests and preferences of the consumer, future expectations of the consumer, and the
other factors.
Any change in any one of these determinants causes a change in demand.
1. Price of the commodity: If the price of a commodity falls, the quantity
demanded increases and vice-versa. Thus there is an inverse relationship
between the price of a commodity and its quantity demanded.
2. Prices of related goods: Related commodities are of two types:
a)

b)

Complementary goods are those that tend to be used together. For

example, a shirts and ties, shoes and socks, and ball-pen and refills. If the
price of parent commodity falls, the demand for both commodities will
go up and vice-versa.
Substitute goods are those goods that can be substituted in place of
other goods, to satisfy the same needs of the consumers. For example,
tea and coffee. If the price of one good goes up the sales of the other
rise, and vice versa.

3. Income of the consumer: Generally income of the people is directly related

to their demand. Thus, demand for most goods (normal goods) is positively
related to income or wealth. A rise in either income or wealth will increase
demand for these goods and vice-versa.
4. Tastes and preferences of consumer: Is how the consumers feel about the
product or service. When tastes change toward a good (people favor it more),
demand increases. When tastes change away from a good, demand decreases.
5. Expectations about Future Prices: Expectations of future changes in a
goods price can affect demand. If buyers expect the price of a good to rise
next month, they may choose to purchase more now to stock up before the
price hike. If people expect the price to drop, they may postpone buying,
hoping to take advantage of the lower price later.
6. Other factors: Other factors like composition of population, distribution of
income, size of population also influence consumers demand. As the

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population increases in an area, the number of buyers will ordinarily increase

as well, and the demand for a good will increase.
Q 2 State the law of supply. Why does a supply curve have a positive slope?
Answer:
Law of supply explains the relationship between price of a commodity and its
quantity supplied. According to the law of supply, other things remaining the same,
quantity supplied of a commodity is directly related to the price of a commodity. In
other words, a higher price will increase the sellers profit incentive to supply the
commodity and induce him to supply a greater amount, ceteris paribus.
The supply curve shows the relationship between the price of a good and the quantity
supplied, holding constant the values of all other variables that affect supply. Each
point on the curve shows the quantity that sellers would choose to sell at a specific
price.
Notice that the supply curve for goods and services is upward sloping. This is the
graphical representation of the law of supply.
The Supply Curve has a positive slope because as the selling price of the product or
service increases, the willingness of producers to create that product increases as well.
With the greater incentive (profit) to make that product or service, production will
rise in direct proportion to how much price increases.
Q3 What is opportunity cost? Give some examples of opportunity cost.
Answer:
The opportunity cost is defined as the next best alternative that could be produced
instead by the same factors or by the equivalent group of factors, costing the same
amount of money. It is the total cost of any choice we make buying a car,
producing a computer, or even reading a book is everything we must give up when
we take that action. This cost is called the opportunity cost of the action, because we
give up the opportunity to have other desirable things.
Opportunity cost is the most accurate and complete concept of cost the one we
should use when making our own decisions or analyzing the decisions of others. It is
not restricted to monetary or financial costs: the real cost of output forgone, lost
time, pleasure or any other benefit that provides utility should also be considered
opportunity costs.
Examles of opportunity cost are:

A person has $15,000 and needs to buy a car, or start a smalll business. He can
either buy the car, or star his own business. If he buys the car the opportunity
cost of that decision is lost potential earnings of starting the business, and if
he choses to starts a business the opportunity cost is the lost potential benefits
of buying the car.
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A person who decides to quit his job and go back to school to increase his
future earning potential has an opportunity cost which is the lost wages for the
time he is in school. Conversely, if he elect to remain employed, then the
opportunity cost is the lost potential wage increase.
You go shopping for new clothes; there are hundreds you could buy with the
limited fund. Finally, it comes down to a jeans and sneakers if the choice is
jeans, the opportunity cost is sneakers & vice versa.

Q4 Long run average cost curve is an envelop curve. Explain

Answer:
The Long Run Average Cost Curve: Is a curve showing per unit cost of producing
a good or a service in the long run when all inputs are variable. LRAC shows the
minimum or the lowest average total cost at which a firm can produce any given level
of output in the long run when all inputs are variable.
The long-run average cost curve can be derived in two ways. One is to plot long-run
average cost, which is, long-run total cost divided by the quantity of output produced
at different output levels. The more common method, however, is as an envelope of
an infinite number of short-run average total cost curves. Such an envelope is base on
identifying the point on each short-run average total cost curve that provides the
lowest possible average cost for each quantity of output.
The long-run average cost curve is U-shaped, reflecting economies of scale when
negatively-sloped and diseconomies of scale when positively sloped. The minimum
point or range on the LRAC curve is the minimum efficient scale.
Consequently, the long run average cost curve is the envelope of the short run
average total cost curves, where each short run average total cost curve is defined by
a specific quantity of capital or other fixed input. That is the reason long run average
cost curve is called the envelope curve as it envelops the short run average cost curve.
Q5 Explain the concept of returns to scale. Illustrate different types of return
to scale with the help of isoquant curves.
Answer:
Returns to scale, in economics is the quantitative change in output of a firm or
industry resulting from a proportionate increase in all inputs.
The concept of return-to-scale deals with production relationships over a period of
time sufficiently long to allow changes in inputs, especially those inputs dealing with
long-term capital commitments related to fixed assets.
The law of returns to scale is applicable in the long- run, where all factors of
production are in variable supply. In the long run, output can be increased by
increasing all the factors of production or the scale of production.

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According to this law, if a firms all factors of production are increased in the same
proportion, the output of that firm may increases in the same proportion, this is
know as returns to scale are constant. If the output increases more than
proportionately, it is said to be increasing returns to scale, and when the output
increases less than proportionately, it is called decreasing returns to scale.
Increasing returns to scale: Is an increase in output, that is proportionally greater
than a simultaneous and equal percentage change in the use of all inputs, resulting in
a decline in average costs.
Returns to scale: is a production process with neither economies nor diseconomies
of scale: the output of the process increases or decreases simultaneously and in step
with increase or decrease in the inputs. A plant, with a constant returns to scale is
equally efficient in producing small batches as it is in producing large batches. See
also declining returns to scale and economies of scale.
Decreasing returns to scale: is production process with diseconomies of scale: the
output of the process either increases in progressively smaller increments, or
decreases simultaneously and in step with increase in inputs. A plant with a declining
returns-to-scale is inefficient in producing batches larger than a certain (optimum)
size. Also called, decreasing returns to scale. See also economies of scale and constant
returns to scale.

Input
LRAC

Diseconomies of
Scale

Economies
of Scale
Constant Return
to Scale

Output

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Assignment: B
Three subjective Questions
Q1 What is meant by price discrimination? Illustrate the third degree price
discrimination assuming two markets. (Show diagram also)
3
Answer:
Price discrimination occurs when a firm charges different prices to different
customers for reasons other than differences in costs.
Koutsoyiannis said: Price discrimination exists when the same product is sold at
different prices to different buyers.
J.S. Bain said: Price discrimination refers strictly to the practice by a seller of
charging different prices from different buyers for the same good.
Mrs. Joan Robinson said: Price discrimination is the act of selling the same article
produced under single control at different price to different buyers.
Stigler said: Price discrimination refers to the sale of technically similar products at
prices which are not proportional their marginal cost.
There are three different types or degrees of price discrimination; First Degree Price
Discrimination; which involves charging consumers the maximum price that they are
willing to pay. There will be no consumer surplus. Second Degree Price
Discrimination; this involves charging different prices depending upon the quantity
consumed. And Third Degree Price Discrimination; it involves charging different
prices to different groups of people.
In third degree price discrimination, price varies by attributes such as location or
by customer segment, or in the most extreme case, by the individual customer's
identity; where the attribute in question is used as a proxy for ability/willingness to
pay.
Additionally to third degree price
discrimination, the suppliers of a
market
where
this
type
of
discrimination is exhibited are capable
of differentiating between consumer
classes.
Examples
of
this
differentiation are student or senior
discounts. For example, a student or a
senior consumer will have a different
willingness to pay than an average
consumer, where the reservation price
is presumably lower because of budget
constraints. Thus, the supplier sets a
lower price for that consumer because
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the student or senior has a more elastic price elasticity of demand. The supplier is
once again capable of capturing more market surplus than would be possible without
price discrimination.
Q2 In a perfectly competitive market, while an industry is a price-maker, an
individual firm is a price taker. Elaborate it
3
Answer:
Perfect competition is a market structure in which, there is a large number of buyers
and sellers and each buys or sells only a tiny fraction of the total market quantity;
sellers offer a standardized product; and sellers can easily enter or exit from the
market. Each perfectly competitive firm can sell as much as it wishes at the market
price.
In perfect competition, the market sums up the buying and selling preferences of
individual consumers and producers, and determines the market price. Each buyer
and seller then takes the market price as given, and each is able to buy or sell the
desired quantity. Thus, a firm that is operating in a perfectly competitive market will
be a price-taker, because there are so many producers of the same product and all
have the perfect knowledge of the market and there is only one buyer of that
product, so no body can decide the price of the commodity on behalf of others. That
is why a firm under perfect competition is a price taker and not a price maker. As part
of the industry, the firm has to simply charge price determined by the industry. If the
firm charges more price, it will lose sales and if it charges less price it will incur losses.
The typical example of perfect competition is agriculture. The products are
indistinguishable. There are many potential suppliers. This makes the farmer a price
taker; if he or she prices the product higher than the market price, he or she will not
make any sales or make fewer sales, thus incurring loss. Thus the farmer has to go
with the price determined by the industry in order to survive
A price-taker cannot control the price of the good it sells; it simply takes the market
price as given. The conditions that cause a market to be perfectly competitive also
cause the firms in that market to be price-takers. When there are many firms, all
producing and selling the same product using the same inputs and technology,
competition forces each firm to charge the same market price for its good. Because
each firm in the market sells the same, homogeneous product, no single firm can
increase the price that it charges above the price charged by the other firms in the
market without losing business. It is also impossible for a single firm to affect the
market price by changing the quantity of output it supplies because, by assumption,
there are many firms and each firm is small in size.
Q3 Explain the meaning of welfare economics and the Pareto optimality
Criterion of social welfare
3
Answer:
welfare economics is branch of economics dealing with how well off people are, or
feel themselves to be, under different states of affairs. Sometimes it is regarded as the
normative branch of economics.
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According to Professor Lange, welfare economics establishes norms of behavior

which satisfy the requirements of social rationality of economic activity. According
to, Professor Baumol, Welfare Economics has concerned itself mostly with policy
issues which arise out of the allocation of resources, with the distribution of inputs
among the various commodities and the distribution of commodities among various
consumers.
The inter-relationship among various parts of the economy means that certain
particular change in one part of the economy affects resource allocation in all parts of
it. Thus, a central problem in welfare economics relates to whether a particular
change in resource allocation will increase or decrease social welfare.
It is not possible to measure social welfare, because it involves making interpersonal
comparison of utilities or welfares of different individuals. In order to avoid that,
economists use Pareto Optimality Criterion for evaluating whether social welfare
increases or decreases as a result of a specific change in economic state, situation or
policy. According to Pareto criterion of optimality or efficiency, any change that
makes at least one individual better off without making any other worse off is an
improvement in social welfare.
Pareto criterion states that if any reorganization of economic resources does not have
anybody and makes someone better off, it indicates an increase in social welfare.

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CASE STUDY

Variety is spice of Life - Indian Fast Food Industry

Walk down the streets of Delhi ( or for that matter any big city ), one will come
across number of food joints, starting fro the local dhaba to one time favourite food
the Delhites Nirulas to the KFCs and Mc Donalds. The fast food industry has a
sizable number of new entrants and the trend seems to continue. An obvious reason
for such industrial growth seems to be the cosmopolitan taste pattern developed by
us. An average Indian 5-10 years back would imagine a masala dosa or a burger to be
a fast food. We have come a long way from those days. Todays Indians, and by that
we do not mean only the X-generation, but, school children, middle aged executives,
grandfathers and house wives, all are fond of fast food, In fact, fast food is too
general a term, Today one has to specify, whether he wants a fish-o-fillet burger
from Mc Donalds or a pan pizza from the Pizza Hut or the special KFC fried
chicken, the list of various types of fast food just goes on.
Technically speaking, it is the same chicken, which will be simply roasted with the
standard Indian marination in a road side tandoor, while in a KFC outlet, the chicken
will be fried in the famous KFC batter, and served with finger chips, coleslaw and the
Coke. You feel you have been transported to the country of Uncle Sam. There lies
the difference. For the consumer, it is a different product.
The product is differentiated in a number of ways starting from the way you present,
the ambience of the eating joint to the location and duration of working hours. The
shop owners harp on this factor and bolster their sales based on this product
differentiation in their advertisements.
After all a Mc Chicken burger, with its declared calorie content, rendered by well
dressed smart boys and girls in the posh market place is not the same as a simple
chicken burger, kept in the hot case of a local shop.
Product Differentiation is costly. Developing a new variety of cheese to be used on
your pizza and to suit the Indian taste requires some laboratory research, market
research and aggressive sales effort. Opening another Mc Donalds joint in another
busy market place all these are costly affair. But, this differentiation brings in
additional revenue. A new chicken burger with lesser calorie content than an average
burger will attract the young girls. A KFC outlet with a special floor filled with balls
and balloons will be a childs delight. Since this is an industry, where any body with a
decent budget can enter, it almost becomes an obligation for the existing ones to
have continues product innovation and differentiation to continue in the business, in
the long term.
Questions:
Q1 Describe how will you justify, that the above example is describing
monopolistic competition. Can you draw a parallel example for another
industry?
(3)

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Answer:
The above example of fast food industry in India is describing a monopolistic
competition market no doubt about that. My reason for saying that is a monopolistic
competition is a market structure in which there are many firms selling products that
are differentiated, yet are still close substitutes, and in which there is free entry and
exit. So a monopolistically competitive market has three fundamental characteristics:
1. Existence of Many buyers and sellers;
2. No significant barriers to entry or exit; and
3. Differentiated products.
Other examples which are similar to fast food industry include automobile,
restaurants, and hotel, industries. There are more than a dozen companies selling
cars, like: General Motors, Ford, Daimler Chrysler, Mazda, Toyota, Honda, Volvo,
Nissan, Jeep, BMW, Volkswagen and several more. Each of these firms supplies a
relatively large part of the market, so each can affect the market price. Moreover, the
product of each firm is different from the products of the others: A Toyota is not a
Ford, and a Ford is not a Jeep.
Q2 What are the marketing strategies followed under monopolistic
competition?
(3)
Answer:
Monopolistic competition refers to a market structure in which there are many sellers
selling similar but differentiated products and there is existence of free entry and exit
of firms.
Answer:
The marketing strategies followed by firms operating in a monopolistic competition
market is to differentiate its products from the products of others, hence each firm
sells a product that is differentiated in important ways in the type of design,
services, appearance, accessories, recipes used, atmosphere, location, and even the
friendliness of the staff.
Sometimes product is differentiated by it's the quality. By many objective standards,
longevity, performance, frequency of repair. In other cases, the difference is a matter
of taste rather than quality. Ultimately, though, product differentiation is a subjective
matter: A product is different whenever people think that it is, whether their
perception is accurate or not.
Since the firm produces a differentiated product, it can sell more by convincing
people that its own output is better than that of other firms. Such efforts, is called
non-price competition, which indicates any action taken by a firm to increase the
demand for its output without cutting its price.
Better service, product guarantees, free home delivery, more attractive packaging, as
well as advertising to inform customers about these things, are all examples of nonprice competition.

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Assignment C
Q1 The goods that can be substituted with each other are known as:
(a) Complementary goods
(b) Competitive goods (
)
(c) Inferior goods
(d) Veblen goods
Q2 Law of demand state that:
(a) Price is inversely proportional to quantity demanded (
)
(b) Price is inversely proportional to 1/quantity demanded
(c) Not related
(d) None of the above
Q3 Law of supply states that:
(a) Price is inversely proportional to supply
(b) Price is inversely proportional to 1/suppy
(c) Price and supply are constant (
)
(d) Price and supply are not related
Q4 At equilibrium price:
(a) Quantity demanded> Quantity supplied
(b) Quantity demanded< Quantity supplied
(c) Quantity demanded is not equal to quantity supplied
(d) Quantity demanded is equal to Quantity supplied (
)
Q5 Demand for a Quantity is perfectly inelastic when:
(a) When quantity demanded changes with price
(b) When quantity does not change with price (
)
(c) Quantity demanded increases with decrease in price
(d) Quantity demanded decreases with increase in price
Q6 Which of the following is the best example of the law of demand?
a. As the price of fur coats decreases, more consumers will buy them. (
)
b As the price of fur coats increases, more consumers will buy them.
c. As the price of fur coats decreases, people buy more wool jackets.
d. As the price of fur coats increases, people buy more leather jackets.
Q7The price of an item drops 10% in such a way that the Price Elasticity of Demand
of that item is unit-elastic. We would expect the quantity of the item demanded to
(a) drop by 5%

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(b) stay the same

(c) increase by 5%
(d) increase by 10% (
)
Q8 Law of variable proportions is not based on which of the following
assumptions: a)
b)
c)
d)

Constant Technology
Homogeneous factor units (
)
Short-Run
Factor proportions are constant

Q9 Increasing returns to a scale refer to a situation when all factors of production

are increased, output:a)
b)
c)
d)

Increases at a higher rate (

)
Increases at a slower rate
Output remains the same
Is constant

Q10 The main cause of the operation of diminishing returns to scale is that:a) Internal and external economies < internal and external diseconomies
(
)
b) Internal and external economies> internal and external diseconomies
c) Internal and external economies= internal and external diseconomies
d) None of the above
Q11 Which of the following is not an external economy:a)
b)
c)
d)

Economies of concentration
Managerial economies (
)
Economies of Disintegration
Economies of Localisation

Q12 Implicit cost is:a)

b)
c)
d)

Cost of payments for resources bought or hired by the firm

Cost of self owned resources and services (
)
Cost borne by the society as a whole
None of the above.

Q13 Total cost is equal to:a)

b)
c)
d)

TC=FC+VC (
)
TC=FC-VC
TC=VC-FC
TC=FC+VC/2
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Q14 The relationship between Average Cost Curve and Marginal Cost Curve of a
firm is:a) When AC is falling, MC is falling at a much faster rate and stays below AC.
b) At lowest point of the AC curves MC becomes equal to AC.
c) When AC starts rising, MC rises at a much faster rate & the MC curve is
always above the AC curve
d) All the above.
15 Increasing returns to scale for a firm are shown graphically by
A) Returns to scale have nothing to do with the shape of the long-run average cost
curve.
B) a horizontal long-run average cost curve.
C) a vertical long-run average cost curve.
D) an upward-sloping long-run average cost curve.
E) a downward-sloping long-run average cost curve. (
)
16 When cost curves are drawn for a firm, all of the following are generally assumed
EXCEPT
A) Average fixed costs are constant. (
)
B) firm is too small to influence factor prices.
C) average variable cost initially declines, and then rises at higher output levels.
D) total fixed costs are constant.
E) marginal product of the variable factor eventually declines.
17 Consumer surplus
A) is the difference between what the consumer is willing to pay for all the
units consumed and what he/she actually paid. (
)
B) is the total value that a consumer receives from a purchase of a particular good.
C) is a measure of the gains a consumer receives in the market.
D) is the sum of the marginal values to the consumer.
E) is the consumption of a commodity above and beyond the amount required by the
consumer.
18 The supply curve remains the same if there is a change in
A) the number of suppliers of the commodity
B) technology.
C) the price of the good
D) the price of a commodity that is a substitute or complement in production.
(
)
E) factor costs.

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19 For an inferior good, the quantity demanded

A) does not change when income rises or falls.
B) rises when income falls. (
)
C) falls when income falls.
D) rises when income rises
E) responds directly to changes in income.
20 The law of diminishing returns states that if increasing quantities of a variable
factor are applied to a given quantity of fixed factors, then
A) the marginal product and the average product of the variable factor will
eventually decrease. (
)
B) total product will eventually begin to fall.
C) the average product will eventually decrease with constant marginal product.
D) the marginal product will eventually decrease with constant average product.
E) the average product will eventually decrease, but only if total product is held
constant.
21 The opportunity cost of money that a firm's owner has invested is an example of
A) Implicit costs. (
)
B) Direct production costs.
C) Sunk costs.
D) Accounting costs.
E) Explicit costs.
22 In the short run, the firm's product curves show (TP= Total Product, MP is
marginal product, AP is average product)
A) TP is at its maximum when MP = O. (
)
B) TP begins to decrease when AP begins to decrease.
C) When MP > AP, AP is decreasing.
D) When the MP curve cuts the AP curve from below, the AP curve begins to fall.
E) AP is at its minimum when MP = AP.
23 A fall in the price of raw milk used in the production of ice cream will
A) Decrease the supply of ice cream, causing the supply curve of ice cream to shift to
the left.
B) Decrease the demand for ice cream.
C) Increase the supply of ice cream, causing the supply curve of ice cream to
shift to the right. (
)
D) Have no effect on the supply curve of ice cream but cause a downward
movement along the supply curve of ice cream.
E) Have no effect on the supply curve of ice cream.

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24 A monopolistically competitive firm is like a monopoly firm insofar as

a. both face perfectly elastic demand. (
)
b. both earn an economic profit in the long run.
c. both have MR curves that lie below their demand curves.
d. neither is protected by high barriers to entry.
25 A monopolistically competitive firm is like a perfectly competitive firm insofar as
a. both face perfectly elastic demand.
b. both earn an economic profit in the long run.
c. both have MR curves that lie below their demand curves.
d. neither is protected by high barriers to entry. (
)
26 Product differentiation;
a. means that monopolistically competitive firms can compete on quality and
marketing.
b. occurs when a firm makes a product that is slightly different from that of its
competitors.
c. makes the firms demand curve downward sloping.
d. All of the above answers are correct (
)
27 If a collusive agreement in a duopoly maximizes the industrys profit,
a. each firm must produce the same amount.
b. the industry level of output is efficient.
c. industry marginal revenue must equal industry marginal cost at the level of
total output. (
)
d. total output will be greater than without collusion
28 A firm that has a kinked demand curve assumes that, if it raises its price, ____ of
its competitors will raise their prices and that, if it lowers its price, ____ of its
competitors will lower their prices.
a. all; all
b. none; all (
)
c. all; none
d. none; none
29 In the dominant firm model of oligopoly, the large firm acts like
a. an oligopolist.
b. a monopolist. (
)
c. a monopolistic competitor.
d. a perfect competitor.

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30 Limit pricing refers to

a. the fact that a monopoly firm always sets the highest price possible.
b. a situation in which a firm might lower its price to keep potential
competitors from entering its market. (
)
c. how the price is determined in a kinked demand curve model of oligopoly.
d. none of the above
31 If marginal product is below average product:
a) The total product will fall
b) The average product will fall (
)
c) Average variable costs will fall
d) Total revenue will fall
32 The law of diminishing returns assumes:
a) There are no fixed factors of production
b) There are no variable factors of production
c) Utility is maximised when marginal product falls
d) Some factors of production are fixed (
)
33 When firms collude to set prices, their individual demand curves become relatively
more elastic.
a.
b.
c.
d.

true
false (
)
may be
None of the above.

34 Oligopolists are less likely to experience price rigidity when they have excess
capacity than when they are near full capacity
A. true
B. false (
)
C. may be
D. none of the above
35 The resources in an economy are:
a)
b)
c)
d)

Constantly increasing
Fixed at any moment (
)
Constantly increasing
None of the above

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36 Economic growths can be shown by:

a)
b)
c)
d)

An inward shift of the production possibility frontier

A movement down the production possibility frontier
An outward shift of the production possibility frontier (
)
All

Q37 .The marginal productivity theory states that under perfect competition, price of
each factor of production will be:a)
b)
c)
d)

Equal to its marginal productivity (

)
More than its marginal productivity
Less than its marginal productivity
Equal to or more than its marginal productivity.

Q38.The factor price for the industry is determined by the point where:a)
b)
c)
d)

Demand > Supply of a factor

Demand< Supply of a factor
Demand =Supply of a factor (
)
None of the above.

Q39.Which of the following is not an assumption of Marginal Productivity Theory:a)

b)
c)
d)

Homogeneous factors
Perfect Competition
Short-run analysis (
)
Law of diminishing marginal returns

Q40. In order to attain the equilibrium position a firm will employ laborers up to a
point where their respective:a)
b)
c)
d)

MRP>wage rate
MRP<wage rate
MRP <=wage rate
MRP=wage rate (
)

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