JNU ECOM 2010 QUES11-20

[Arushi :))]

These six questions 11-16 are based on the following table which gives the variable cost of producing the different levels of output of a commodity that a competitive firm might produce:
OUTPUT ,VARIABLE COST OF PRODUCTION
0,0
1,25
2,42
3,54
4,64
5,75
6,93
7,112
8,140
9,180
10,230
The sunk cost of production in the short run is 15.
QUES11
If the price of the commodity is 20, then profit maximizing level of output is:
a.6
b.7
c.8
d.9
ANS-b
QUES12
If the price of the commodity is 19, then profit maximizing level of output is:
a.6
b.7
c.8
d.9
ANS-b
QUES13
Which of the following is true?
a. profit when price is 20 equals profit when price is 19 and profit equals 6
b. profit when price is 20< profit when price is 19
c. profit when price is 20> profit when price is 19
d. profit when price is 20 equals profit when price is 19 and profit equals 23
ANS- c
QUES14
If the price of commodity is 14, then the profit maximizing level of output is:
a.4
b.5
c.0
d. None of the above
ANS - c
QUES15
If the price of commodity is 17, then the profit maximizing level of output is:
a.1
b.2
c.3
d.5
ANS -d
QUES16
If the price of commodity is 17, then at profit maximizing level of output, the firm :
a. incurs a loss of 5
b. incurs a loss of 15
c. makes a profit of 7
d. none of the above.
ANS-a
QUES17
If good x n good y are perfect substitutes , then the indifference curves will be:
a. strictly convex to the origin
b. strictly concave to the origin.
c. straight lines.
d. L-shaped
ANS-c
QUES18
A monopolist faces the following demand function D(P):
D(P)= 10, for P in the interval [1,10]
      = 20-P, for P in the interval (10,20)
      =0, for P in the interval [20,infinity)
Now suppose that the monopolist has zero-variable cost of production. However, if it produces any positive amount, it must incur a fixed cost of Rs.50. What is the optimal monopoly price?
a.15
b.10
c.5
d.There is no monopoly equilibrium
ANS- b
The next two questions are based on the following:
Suppose a consumer wants to consume two commodities both of which are available only in discrete units. Let the prices of the goods be Rs.4 & Rs.3 respectively. The consumer's income is Rs.10.
QUES19
The consumer's budget set is:
a.{(x,y)| 4x+3y is less than or equal to 10, x,y are greater than equal to 0}
b.{(0,0), (0,1), (0,2), (0,3), (1,0), (1,1) , (1,2), (2,0) }
c.{(0,1), (0,2), (0,3), (1,0), (1,1) , (1,2), (2,0) }
d. { (1,2)}
ANS - b
QUES20
Suppose that price of both commodities fall by 10 paisa and money income increases by 10 paisa. If the preferences of the consumer over the two goods have not changed, then:
a. At the optimum, the consumer would consume more of both commodities.
b. At the optimum, the consumer would consume more of commodity 1 and less of commodity 2.
c. At the optimum, the consumer would consume more of commodity 2 and less of commodity 1.
d. The consumer's optimal bundle doesn't change.
ANS-a

[Arushi :))]

Kangkan/ sonia... or someone please verify the answers

[SoniaKapoor]

Hii arushi questions 1-18 ...answers are matching...

Please explain me about quest 19..

[Arushi :))]

Sonia..
we have to approach the case in similiar way  with some precaution
Had it not been given that the goods are discrete answer would have been part a
But here its given that the consumer is consuming in discrete units i.e. positive integer amounts of both the goods
so we have to consider all the bundles that are affordable
starting with 0 units of x:
(0,0) ,  (0,1), (0,2) , (0,3) are affordable because the expenditure on these bundles is less than 10 (his income)
then , if he consumes 1 unit of good x, possible options for him are (1,0), (1,1) and (1,2)
next case would be taking 2 units of good x, the only possible option would be 0 units of y.. because if we take y=1  , it would cost him 11rs..
so these are all the affordable consumption bundles , implies his budget set
hope its clear

[SoniaKapoor]

cool got it...:)))

[kangkan]

Matches my answers

[econ14]

for 20 correct option is (d) not (a) please check.

[vandita24x7]

no its A

On Mon, Mar 3, 2014 at 12:19 PM, sandeep pandey [via Discussion forum] <[hidden email]> wrote:

for 20 correct option is (d) not (a) please check.

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NAML

[Arushi :))]

yeah i just went through it again.. The answer would be 'd'
The consumer is consuming discrete units here. If price of both goods decrease by 10 paisa and income increases by 10 paisa, then the new price, income vector would be (3.90,2.90,10.10) earlier it was (4,3,10) Now whatever (x*,y*) is the consumer consuming, he would be having an extra purchasing power of 30 paisa at that bundle, which would buy him nothing ! Hence , the optimal bundle would remain same.
I hope the reasoning is correct .

[Dreyfus]

For q20 it should be d..... bundle (1,2) is the only possible bundle with both of goods( and with max quantity  of both I.e optimum) and at the new budget constraint the consumer will still can afford only that bundle I.e. (1,2)

[vandita24x7]

oopss i did not see it was a continuation of q. 19 . yeah d without any doubt

On Mon, Mar 3, 2014 at 1:21 PM, Vaibhav Garg [via Discussion forum] <[hidden email]> wrote:

For q20 it should be d..... bundle (1,2) is the only possible bundle with both of goods( and with max quantity  of both I.e optimum) and at the new budget constraint the consumer will still can afford only that bundle I.e. (1,2)

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NAML

[Arushi :))]

Vaibhav indeed the answer is d. But we cant say (1,2) is the optimum until and unless preferences are given! Example if the goods are perfect substiutes then in that case
The consumer's optimal bundle is (0,3) because px>py
After the price change also he consumes only good y and the bundle is (0,3)

[anishagulati]

Hi Arushi
Can you please explain ques16 and ques18.

Thanks :)

[jack]

could you give me the explaination of Q.18

[ViV]

@ Jack play with the options.
P = 15, D = 5 (Look at the brackets in the question for D)
TR = 75, TC = 50, PROFIT = 25
P = 10, D = 10
TR = 100, TC = 50, PROFIT = 50
P = 5, D = 10
TR = 50, TC = 50, PROFIT = 0
So (b) is the answer.