|Course Title:||Principles of Microeconomics-I|
|Program:||BAG / BA (CBCS)|
|Session:||July 2019 and January 2020 (2019-20)|
|Last Date of Submission:||30th April, 2020 (for July 2019 session)
31st October, 2020 (for January 2020 session)
|Solution Type:||Softcopy (PDF File)|
BECC-131 : PRINCIPLES OF MICROECONOMICS – I
Tutor Marked Assignments
Course Code: BECC-131
Assignment Code: ASST /TMA /July 2019 and January 2020
Total Marks: 100
Answer the following Descriptive Category questions in about 500 words each. Each question carries 20 marks. Word limit will not apply in case of numerical questions.
1. (a) Explain the concept of short-run and the long-run as associated with a firm.
(b) Illustrate the relation between Marginal Cost (MC), Average Total Cost (ATC), Average Variable Cost (AVC) and Average Fixed Cost (AFC) curves. Given a total cost function,
TC(Q) = 7Q2 + 5Q + 75
where Q represents quantity of output produced. Find the expression for Variable cost (VC), Fixed cost (FC), AVC, AFC and ATC.
(a) Differentiate between Private and Social cost.
(b) Describe with the help of a diagram interaction between the Short-run Average Total Cost curves and the Long-run Average Total Cost curve given that the firm has five plant sizes to consider viz. I, II, III, IV and V (in ascending order of their size), wherein plant size III turn out to be optimal plant size in the long run.
2. (a) Discuss the income and substitution effects of a price change in case of an inferior good.
(b) Consider the demand curve AC of a good in Figure 1. Given distance AB and BC as x and y, respectively,
(i) What will be the price elasticity of demand for the good at point B? What will be the price elasticity of demand for the good at point A and at point C?
(ii) Given that price elasticity at point B is 1, how x and y will be related?
(a) A Giffen good is a special type of inferior good. Do you agree? Give reason.
(b) (i) Consider Figure 2, where DD’ represents the rectangular hyperbola demand curve for a good. Find the price elasticity of demand for this good at point A and point B.
(ii) Given the price elasticity of demand for a good as 0.6. Suppose price of this good decreases by 10%, what would we expect to happen to the quantity demanded?
Answer the following Middle Category questions in about 250 words each. Each question carries 10 marks.
3. A rent ceiling prohibits charging rent that exceeds the ceiling amount. Suppose government decides to put a rent ceiling.
(a) With the help of a diagram show the effect of a rent ceiling on the supply and demand of a rented house if the ceiling is set below the market equilibrium rent.
(b) What will be the resultant effects on supply and demand of a rented house if the ceiling is set above the market equilibrium rent?
(a) Illustrate with the help of a diagram, higher the price elasticity of demand, larger will be the per unit tax burden borne by the producers.
(b) The demand and supply functions of a good are given by QD = 110 − 5P; QS = 6P where P, QD and QS denote price, quantity demanded and quantity supplied, respectively. Find the inverse demand and supply functions and the market equilibrium price and quantity.
4. Consider a consumer who consumes two goods X and Y, priced at PX and PY, respectively. Suppose price of good X rises to PX’. Decompose price effect of this price increase into substitution and income effect using Hicksian approach.
Does tangency of indifference curve with the budget line always result in optimal solution for the consumer utility maximisation problem? Discuss.
5. (a) Define Marginal rate of Technical Substitution (MRTS).
(b) Given that the two factor of production behave as perfect substitutes to one another in the production process, what will be the shape of the corresponding isoquant and the value of the MRTS as we move down along the isoquant?
Compare the producer’s equilibrium condition given by ‘maximisation of output for a given cost’ with that given by ‘minimisation of cost for a given level of output’. Do both these conditions result in same outcome?
Answer the following Short Category questions in about 100 words each. Each question carries 6 marks.
6. What causes Increasing returns to a variable factor in the production process?
7. Differentiate between changes in supply and changes in quantity supplied.
8. Discuss the central problems of an Economy.
9. Law of Variable Proportion is a short-run concept. Do you agree?
10. Differentiate between External Economies and External Diseconomies.