Q13 of 30 Page 1

a) Apply the geometric method to determine the elasticity of supply at point L on the supply


curve SS given above. (3)


b) Justify the statement, ‘In economics, normal profits are always a part of total cost’. (3)

a) Elasticity of Supply at point L = Supply Curve intercept on X-axis/ Supply at point L

Draw a perpendicular from point L on the axis, say at OQ,


The intercept of the supply curve coincides with the origin. Therefore, Es at point= OQ/OQ = 1


b)


Profit is the return that the producer gets from his capital invested in the business. Total costs include payments done for the primary input.


Total cost =implicit cost+ explicit cost


Implicit cost: Costs owned by the producer for the resources.


Explicit costs: the cost of hiring labour, purchasing raw material etc.


More from this chapter

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11

Explain the concept of marginal opportunity cost using a numerical example

 12

Define Price Floor. What is the common purpose of fixation of floor price by the

government? Explain any one likely consequence of this nature of intervention by the


government.


OR


Define Price Ceiling. What is the common purpose for the price ceiling imposed by the


government? Explain any one likely consequence of this nature of intervention by the


government in the price determination process. (2+2+2)

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A consumer, Mr. Aman is in the state of equilibrium consuming two goods X and Y, with given

prices Px and Py. Explain what will happen if:


a. MUx / Px is greater than MUy / Py.


b. Py falls

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State, with valid reasons, which of the following statement are true or false:

a. Average Revenue curve under the Perfect Competition is a downward sloping curve.


b. AFC curve is a rectangular hyperbola curve.


c. When MR is falling but positive, TR will also be falling and positive