JNU 2008 (SSS)

[MomoChan]

Please help with question B7
Thank you

[Econenthusiast]

I'm getting option a.

W + P = Y
and Sw + Sp = Total savings

Since 0.4 P = Sp and 0.4 Y = P ( because 0.6 Y is W )
Sp = 0.4 x 0.4 Y = 0.16 Y

Thus Sw = Total Savings - 0.16 Y = 0.25 Y - 0.16 Y = 0.09 Y

[soimmoi]

Hey! you've done it correctly but the question is asking what fraction of wages is saved so, it should be 0.09/0.6 = 0.15 i.e option b

[Econenthusiast]

oh yes! thanks for the correction

[soimmoi]

A perfectly competitive firm produces  100 units of output. It faces a total ftxed cost
ofrs 5,000. The average variable cost (AVC) of production at this output is 10. When
production rises to 101, the total cost of production is rs 6,070. Then at this point
(a) the AC curve must be falling
(b) MC<AVC
(c) the MC curve lies above the AC curve
(d) the firm should exit the industry