BCom(Hons.

) Ist yr - Assignment 1
Attempt both questions

Question 1 Suppose Arvind and Bhavesh have decided to allocate Rs 1,000 per year on liquid refreshments in the form of alcoholic or non-alcoholic drinks, Arvind and Bhavesh differ substantially in their preferences for these two forms of refreshment. Arvind prefers alcoholic to non-alcoholic drinks, while Bhavesh prefers the non-alcoholic option.  Draw a set of indifference curves for Arvind and a second set for Bhavesh.  Discuss why the two sets of curves are different from each other by using the concept of MRS.  If both Arvind and Bhavesh pay the same prices for their refreshments will their MRS of alcoholic for non-alcoholic drinks be the same or different? Explain (10) Question 2 What is an inferior good? Must the demand curve of an inferior good slope downward? (10)

BCom(Hons.) Ist yr - Assignment 2
Attempt all questions

Question 1 Suppose an isoquant is a straight line with slope of -1. What does this imply about the MRTS? What does this imply about the marginal products of the two inputs? (5) Question 2 Suppose that a steel plant’s production function is X=5LK; where X is the output, L is the amount of labour and K is the amount of capital. Suppose that the price of labour is Re. 1 per unit and the price of capital is Rs 2 per unit. The firm hires you as a consultant to figure out what combination of inputs the plant should use to produce 20 units. What is your answer? (10) Question 3 What do the isoquants look like when the inputs are perfect substitutes? Explain. What does this imply about the least cost combination of inputs? (5)

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