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the fundamental purpose of production is
A person’s utility function is of the form U(x,y) = 5xy. The prices of good x and y are Px = $4 and Py = $2, respectively. The person’s income is $1200.
(a) Show that these preferences are homothetic?
(b) What quantities of x and y should the consumer purchase to maximize his
utility?
(c) Determine the person’s income offer curve (IOC). Draw it.
(d) Explain whether each of the two goods is normal or inferior.
(e) Derive the Engel curve for x. Draw it.
Vibhash, a Surat based garment manufacturing plant has been operating for ten periods. The output
rate (in tonnes) and the total cost for each period are shown here. (20 marks)
Period Output Total Cost Period Output Total Cost
1 4 13 lacs 6 11 19 lacs
2 12 17 lacs 7 6 12.5 lacs
3 21 44 lacs 8 27 95 lacs
4 16 29 lacs 9 19 35.5 lacs
5 30 105 lacs 10 8 14 lacs
a. Use excel to find the cubic total cost function.
b. Use the estimated total cost function to derive equations for average cost and marginal cost.
c. Using the same data, compute average costs for each of the ten periods. Using the computed
average cost data, estimate the quadratic average cost function.
2. Kapoor Denims Inc. manufactures denim fabric. 20 metres of the fabric is sold at Rs 8000. Fixed costs
is Rs 20 lacs per production period and the profit contribution is 40 percent of price. (20 marks)
a. Determine the BEP.
b. Determine the Profit/loss at output of 8,000, 10,000 and 15,000 units.
c. For the next production period, fixed costs will increase to 30 lacs due to a major capital
investment programme, but the new and more efficient machinery will result in a lower variable
production cost so that variable cost per metre will be reduced by 40 percent. If price is unchanged, re-
compute the profit /loss at output rate of 8,000, 10,000 and 15,000 units
Anuradha Sharma, a start up entrepreneur from Bareilly, has invested Rs 80 lacs in an apparel retail
store. Business has been good, and the store shows an accounting profit of Rs 10 lacs for the last year.
This profit is after taxes and after payment of a Rs 20 lacs salary to Ms. Sharma. This salary is less than
what she could make at another job, which is about equal to Rs 40 lacs. Considering the risk involved in
the fashion retail business post Covid’19, she believes that a 15 percent after-tax rate of return is
appropriate for this type of investment. (20 marks)
a. Given this information, calculate the economic profit earned by Ms Sharma.
b. What accounting profit would the firm have to earn in order for the firm to break even in term
of economic profit?
a competitive firm is referred to as a
A price giver
B price taker
C price maker
D price cutter
E price setter
The fundamental problem in economics is
The fundamental problem in economics is... (4 marks)
a) The law of increasing opportunity cost.
b) The scarcity of resources relative to human wants.
c) How to get the government to operate efficiently.
d) How to create employment for everyone.
Two products
YR 1
YR 2
P1
W1
P2
W2
Call center
10
50
12
50
Banking
10
50
12
60
d. Using year 1 prices, what is real GDP per worker in year 1 and year 2? What is labour productivity growth between year 1 and year 2 for the whole economy? Now suppose that banking services in year 2 are not the same as banking services in year 1 because they include internet banking, which year 1 banking services didn’t include. The technology for internet banking was available in year 1 but the price of banking services with internet banking in year 1 was $13 and no one chose that package. However, in year 2 the price of banking services with internet banking was $12 and everyone chose to have that package in year 2 (that is, in year 2 no one chose to have the year 1 banking services package without internet banking).
What is the most economic problem
