Economics : 2016 : CBSE : [Delhi] : Set- III

c. Both (a) and (b)

Explanation: Homogeneous products imply that goods produced by different producers are identical.

(c) Both under monopoly and monopolistic competition

Explanation: The monopolist and monopolistic firms face downward sloping demand curve which shows the negative relation between price and demand for the product.

The relation between marginal cost and average cost is shown below:

When average cost is rising, marginal cost is above average cost and is also rising.

b. equal to average revenue

Explanation: When total revenue is rising at a constant rate as more and more units of a commodity are sold, marginal revenue would be equal to average revenue.

Decrease in supply takes place due to changes in factors (like increase in the price of inputs, rise in taxes) other than its price. Graphically, it is shown by leftward shift of the supply curve for all prices.

Price elasticity of demand of good Y is more elastic than good X. For the measurement of price elasticity of demand we ignore the negative sign because this sign appears due to the negative relation between price and quantity demanded of good not because of the mathematical calculation.

A price ceiling is a government-imposed limit on how high a price can be charged for a product. Price ceilings are often intended to protect consumers from certain conditions that could make necessities unattainable. Example: prices of wheat at ration shop.

Price ceiling accompanied by rationing of the goods may have following implications:

• Black marketing: Price ceiling leads to excess demand in market which in turn creates black marketing if market price is below the equilibrium price. In the black market, goods and services are sold at a price more than the price fixed by the government. It implies the failure of government policy.
• Consumer has to wait in long queues: When there is excess demand in the market, people are demanding more than supply. People have to wait in long queues for buying goods.
• Consumers not satisfied with the quantity: Since all consumers will not be able buy desired quantity from the fair price shop, some of them will be compelled to buy from regular market at higher price.

If price of a good is less than the equilibrium price, there will be a situation of excess demand. There will be competition among the buyer to purchase more and more quantity at a lower price. It will push the prices upward and reduce the excess demand. These changes continue till the price settles at the equilibrium point. At this price, demand is equal to supply.

A consumer attains equilibrium when

MU_X/P_X = MU_y/P_y

Where,

MU_X = Marginal utility derived from good X

P_X = Price of good X

MU_y = Marginal utility derived from good Y

P_y = Price of good Y

By putting the given values in the formula, we get

MU_x/P_x = 2/1 and

MU_Y/P_Y = 2/2

Thus, as MUx/Px > MU_Y/P_Y, the consumer is not at equilibrium.

A rational consumer who wants to maximise his utility should increase consumption of good X and decrease the consumption of good Y. This is because the utility that the consumer derives from the last rupee spent on good Y is less than the utility that he derives from the last rupee spent on good X. Thus, the consumer should increase consumption of good X and decrease consumption of good Y till MUx/Px = MU_Y/P_Y.

The production function represents the technological relationship between physical input and output of a product. In other words it shows that with a given state of technology and during a particular period of time how much we can produce with the given inputs. Symbolically, production function can be written as follows

Q = f (f1, f2, f3,..., f4 )

f1, f2, f3 are factors of production.

Generally, land, labour, capital and entrepreneurs are the factors of production used in the production process.