ISI 2007 questions

[Anakin Skywalker]

CONTENTS DELETED

The author has deleted this message.

[L]

I got the same for first.
For second part, did you find wage by setting
50w = 100?
Though no ideas about rental rate.

[Anakin Skywalker]

CONTENTS DELETED

The author has deleted this message.

[L]

It is given all markets are competitive, also production function is CRS. So, profits should be zero. But, I guess rental must be some value, though your answer seems to be correct.

[Rajat]

Got the same answer for second question. How are you guys doing the 1st question. the one on petrol price.

The way i have solved it is as follows.

The budget lines in the two cases intersect at the original consumption bundle. So, finding the answer to parts (b) and (c) is equivalent to finding the subsitution effect when the price of petrol rises from 40 to 50.
Now, we know that substitution effect is always negative (i.e. opposite to direction of price movement). Since there is a price rise here, the substitution effect will make the consumption of petrol go down.
Also, the customer is now moving on a budget contraint line that is higher than the old one (considering only the left hand side portion to the point of intersection).Hence, for any amount of petrol consumption,  the value of 'M' is higher as compared to the previous case. Thus, he is better off in this case.

Is this correct ?

[ghonchuji]

I m not getting second part  solution

[ghonchuji]

I m getting r= p-4

[Anakin Skywalker]

CONTENTS DELETED

The author has deleted this message.