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Consider the supply function \( Qs = a + bP \) and interpret the components.

Consider the supply function \( Qs = a + bP \) and interpret the components.

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  1. 1.

    Consider the following supply schedule:

    Points: A B C D E
    Price (Rs): 0 10 20 30 40
    Supply (Units): 100 200 300 400 500

    a. Compute the price elasticity of supply at movement from B to D and D to B by proportion method.
    b. Compute the price elasticity of supply at midway between B and D and D and B by arc method. Why is arc method considered as more appropriate method than proportion method?
    c. How do firms use price elasticity of demand in business decision making? Explain with suitable examples.

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  2. 2.

    Describe the significance of production function in business decision-making. How do firms achieve optimal employment of two variable inputs? Explain.

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  3. 3.

    Explain the price effect for normal substitutes. How can it be decomposed into income and substitution effects? Explain.

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  4. 4.

    Consider the following cost schedule:

    Q: 0 1 2 3 4 5 6 7 8
    TFC: 100 100 100 100 100 100 100 100 100
    TVC: 0 10 18 24 32 50 80 124 180
    TC: 100 110 118 124 132 150 180 224 280

    a) Graph TFC,TVC,and TC and explain their behavior.

    b) Is the trend of TC or TVC is influenced by the law of variable proportions ? Explain.

    Long question Asked in 2079 (10 marks)
  5. 5.

    Let revenue function, \( TR = 100Q - Q^2 \), cost function, \( TC = 50 + 6Q^2 \)

    a) Compute\( TR \), \( TC \) and profit \( \pi \) at the output range of 0 to 10 units.

    b) Graph \( TR \), \( TC \) and \( \pi \) and explain profit maximization goal of the firm.

    Asked in 2079 (10 marks)
  6. 6.

    What is economic rent? How is it determined?

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