Economics : 2019 : CBSE : [All India] : Set 1

parallel to X-axis

Explanation:

The shape of the average revenue curve under perfect competition is parallel to X-axis. It is because in perfect competition, commodities are sold at uniform prices and the price is equal to marginal revenue which is equal to average revenue.

(b)  Increase in resources

Explanation:

In the given figure, PPC has shifted to right at all points, it implies that the production of both the goods has increased at given the level of technology.

decreasing

Explanation:

Marginal Rate of Transformation = Δ Y/ Δ X is continuously decreasing. It implies that in order to produce more of one good X, we have to sacrifice more units of good Y.

The two examples of the implicit cost incurred by a firm are as follows:

1. Use of own building for production purposes by factory owner, and not receiving rent.
2. Use of own capital to purchase machinery for the production and not charging any interest

The expenditure made on the purchase of a variable factor of production or to hire casual labourer is termed as variable cost.

(c)  Elastic Supply

Explanation:

When there is more percentage change in quantity supplied due to a percentage unit change in price, it is known as elastic supply.

This problem is related to the decision regarding the manner in which goods and services should be produced. In other words, the problem is to choose either labour intensive technique or capital intensive techniques. This problem arises because there is more than one possible way in which goods and services can be produced.

When a particular method of production is chosen than the other, it affects the structure of the whole economy. For example, a developing country chose labour intensive techniques because labour is available in abundance and it is government task to provide jobs.

(a) Normative Economics

Reason: Normative economic analysis describes  “what ought to be”. Its objective is to determine the norms. Normative statements pronounce value judgment or an opinion relating to right or wrong of a particular policy matter and it is always a matter of debate.

(b) Positive Economics

Reason: Positive statements describe what was, what is and what would be under the given set of circumstance. All the statements are verified empirically.

In the given situation, Nominal Gross Domestic Product (GDP) is calculated on the basis of ‘current year prices’ which can be verified with available data.

Total utility is defined as the total psychological satisfaction derived from the given stock of the commodity consumed. It can be estimated as the sum total of marginal utilities derived from the commodity.

TU =∑MU

Marginal utility is defined as the utility derived from the additional unit of the commodity consumed. It can be estimated as the change in TU due to change in one unit of the commodity consumed.

MUn = TU_n - TU_{n – 1}

For example, if the consumption of first unit of the commodity gives the satisfaction of 20 utils and the consumption of the second unit of the commodity gives 15 utils of satisfaction, then the total utility derived from consumption of one commodity is 20 utils and from consumption of two commodities will be 35 utils and the marginal utility for the consumption of the second unit will 15 utils.

A firm attains its equilibrium using marginal revenue – marginal cost approach at units where MR= MC and MC is rising.

The given firm attains equilibrium at 5^th unit of production.

Marginal revenue is the revenue (including normal profit) by selling one more unit of good. Marginal cost is the cost of producing one more unit of the good. At the point where MR=MC, the firm is earning exactly the same amount, it is spending on producing it. If it continues to produce after the 5^th unit, its MC is more than the MR which indicates a loss. So, it is profitable for firm to produce till the level where MR=MC.