Indian Institute of Technology Ropar
Department of Humanities & Social Sciences
HS 201 - Economics
First Semester of AY 2024-25
Mid Semester Examination
Duration: 2 Hours Full marks: 30 Date:18/09/2024
Instructions: This examination consists of questions with different weights of marks. PartI consists
of MCQs, and each question carries one mark. Part II and III are numerical and analytical questions.
Attempt all the questions.
PartI
1.A firm faces the following long-run cost function TC = q- 40q² +450q.AC, will be at its minimum
when
(a)Q =10, AC = 20 (b)Q=40, AC = 60
(c) Q=20, AC = 50 (d) Q-40, AC= 10
2. When there is decreasing returns to scale
(a) distance between successive isoquoants gradually increases
(b) distance between successive isoquoants become equal
(c) distance between successive isoquoants gradually decreases
(d) None of the above
3. If a firm produces 200,000 units a year and sells allfor Rs. 10 each. Explicit costs of production are
Rs.l,500,000 and implicit costs are Rs.300,000. Accounting profit of the firm would be
(a) Rs.500,000 and an economic profit of Rs.200,000. (b) Rs.400,000 and an economic profit of
Rs.200,000.
(c) Rs.300,000 and an economic profit of Rs.400,000. (d) Rs.200,000 and an economic profit of
Rs.500,000
4. If the two goods are perfect substitutes, the indifference curve will
(a) concave to the origin
(b)a straight line parallel to the horizontal axis
(c) the isoquant uill.be L-shaped
(d) the isequantwill bea negatively sloped straight line.
5. If price elasticity of demand for a commodity is -3.0, then
(a) 12 percent fall in price leads to a 36 percent rise in quantity demanded
(b) 12 percent fall in price leads to a 4 percent rise in quantity demanded
(c) Rs.1,000 fall in price leads to a 3,000-unit rise in quantity demanded
() Rs.1,000 fall in price leads to a 333-unit rise in quantity demanded
Part II
J. Explain the relationship between price, marginal revenue, and the elasticity of demand fora
commodity both graphically and algebraically.
3
1
utility function of a
commodities X, and X,if the consumer
prices a
Derive the demandfunctions of
two
of the consumer is 150, and the
2.
X2) =XX, and the income
isgiven by u(X1, 8
P, 5, respectively.
and X, are P,= 10 and
at
quantities demanded and supplied (per year)
competitive market for which the
3. Consider a follows: Supply(inmillions)
various prices are given as Demand (in millions)
Price (in rupees) 14
22 16
60
20
80 18
100 18
20
120 16
Given the above, answer the following: price is
a) Calculate the price elasticity of
demandwhen the price is Rs.80 and when the
Rs. 100. 1
Rs.80. When the price is Rs.100.
b) Calculate the price elasticity of supplywhen the price is
1
show in the
c) Determine the equilibrium price and quantity from the above information and
graph, and interpret it in 1-2 lines.
1
d) Suppose the government sets a price ceiling of Rs.80. Will there be a shortage, and, if so,
how large will it be? Answer in a few lines.
1
Part III
4. Suppose that there are two goods XandY and quantity of good Xdemanded by individual one
and quantity of good Xdemanded by individual two in an economy are given by
X, = 102 Px +0.01 M+0.4 Py
X,=5Px +0.02 M +0.2 Py
Let Px be the price of good X and Py be the price of good Y. And let Mi represent the income of
individual Iand M, the income of individual 2 and suppose, Mi = M2= 1000, and Py = 10. Given these
information, answer the following questions:
(a) Graph the demand curves of two individual (with X on the horizontal axis and Px on the
vertical axis)
2.5
(b) Using the individual demand curves obtained in part a, graph the market
demand curve for
total X. What is the algebraic equation for this curve?
2.5
2
S. Suppose a firm has a long-run production function as follows:
q= f(K, L) =K'L Ia
where w and r denote per unit price of labour and capital, a and (1-a) are
coefficients. Given
this, answer the following questions:
Does this production function exhibit increasing, decreasing, or constant
returns to scale?
Explain
2.5
b. Find the expression of the short-run cost curve, C(q), as a function of q and
the parameters,
assuming that capital K is fixed in the above production function.
2.5
C. Assume that K(fixed) = 10, r= 1.5, w =6, and a = (2/3). Given these, derive expressions
for marginalcost (MC), total variable cost (TVC), total fixed cost (FC), Average total cost
(ATC), average variable cost (AVC), and AFC. Plot MC, ATC, AVC, and AFC are all on
the same graph.
2.5
d. Assume that K (fixed) = 10, r= 1.5,w =6, and a =2/3. Also, Assume now that the market
price of the commodity produced (p) = 18, which is fixed, and the firm is operating in the
short run. Calculate the profit-maximizing level of output, q
2.5
