doubtsss

[SoniaKapoor]

q1 The demand for spring water is given by P = 1000- Q. Assume that the cost of
production to be zero. What is the equilibrium price for the industry if there are four
firms in the industry?
a) Rs. 800
b) Rs. 200
c) Rs.100
d) Rs.1000


q2 Of the production functions, which one of the following represents decreasing
returns to scale?
a) Q = 2K + 3L +KL
b) Q = 20K^0.6^L0.5
c) Q = 100 + 3K +2L
d) Both a) and c) above

[Dreyfus]

q2,....c)

[Akshay Jain]

The equlbrm price in the industry will be 200

[SoniaKapoor]

Vaibhav,Akshay pls give ur explanationsss

[Homer Simpson]

Shouldnt 2 be (d) ?

And for 1, even (a) doesnt seem wrong. Akshay, can you explain how you got 200?

[Economics student]

Please explain your answer Akshay. I agree with Tsuki, even a doesn't seem wrong.

[econ14]

hey akshay plzzz explain q1.

[econ14]

@tsuki how did you do q2....plzz help

[Dreyfus]

@tsuki....production function F(K,L) = 2K + 3L + KL has inc returns to scale....
As F(tK,tL) > t*F(K,L)

[Homer Simpson]

thanks, its 1(c) for sure.

[Akshay Jain]

I used the cournot competition in case of 4 firms and since all the frms face equal MC of 0 and same mkt demand curve....In eqm they vl produce eqaul quantities....
P=1000-(q1+q2+q3+q4)
evey frm i will try to mazimze total profit (w.r.t. qi) = 1000qi-(q1+q2+q3+q4)*qi
qi*=200 for all qi and thus
P=200

[Akshay Jain]

In ques 2 just apply the defination of returns to scale (the effect on output by doubling the inputs)
for convinience give arbitrary values to K nd L in all the 3 functions
now double those arbitrary values of K nd L and see whether the output increases by factor 2/>2/<2
option C will satisfy the <2 case....that is decreasin returns to scale

[Anjali]

Akshay I didn't get your explanation. Could you please elaborate ?

[Anjali]

*for ques 1 !