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4 Credits, 60 marks

Q.1 What is production function and its uses? Explain the two types of
Answer: A production function shows the relationship between inputs of
capital and labor and other factors and the outputs of goods and services.
In macroeconomics, the output of interest is Gross Domestic Product or GDP
The simplest possible production function is a linear production function
with labor alone as an input.

Q2. Consumers' interview method is a survey method used for
estimating the demand for new
products. This method is very important with regard to collect the
relevant information
directly from the consumers with regard to their future purchase plans.
Opinion surveys
and direct interview method are the two important techniques among
all. Describe these
two methods in detail.

Q3. A cost-schedule is a statement of variations in costs resulting from
variations in the levels of output and it shows the response of costs to
changes in output. If we represent the relationship between changes in
the level of output and costs of production, we get different types of
cost curves in the short run. Define the kinds of cost concepts like TFC,

TVC, TC, AFC, AVC, AC and MC and its corresponding curves with
suitable diagrams for each.
Answer: A proper understanding of the nature and behaviour of costs is a must
for regulation and control of cost of production. The cost of production depends
on money forces and an understanding of the functional relationship of cost to
various forces will help us to take various decisions. Output is an important
factor, which influences the cost.
The cost-output relationship plays an important role in determining the optimum
level of production. Knowledge of the cost-output relation helps the manager in
cost control, profit prediction, pricing, promotion etc. The relation between cost
and its determinants is technically described as the cost function----------

Q4. Inflation is a global Phenomenon which is associated with high price
causes decline in the value for money. It exists when the amount of
money in the country is in excess of the physical volume of goods and
services. Explain the reasons for this monetary phenomenon.
Answer: Define Inflation- Inflation is commonly understood as a situation of
substantial and rapid increase in the level of prices and consequent deterioration
in the value of money over a period of time. It refers to the average rise in the
general level of prices and fall in the value of money.
Inflation is an upward movement in the average level of prices. The opposite of
inflation is deflation, a downward movement in the average level of prices. The
common feature of inflation is rise in prices and the degree of inflation may be
measured by price indices.
Inflation is statistically measured in terms of percentage increase in the
price index, as a rate (percent) per unit of time- usually a year or a

Q.5 Discuss the practical application of Price elasticity and Income
elasticity of demand.
Answer: Price elasticity of demand :
Price elasticity of demand (PED or Ed) is a measure used in economics to
show the responsiveness, or elasticity, of the quantity demanded of a good or
service to a change in its price. More precisely, it gives the percentage change in
quantity demanded in response to a one percent change in price (ceteris paribus,
i.e. holding constant all the other determinants of demand, such as income). It
was devised by Alfred Marshall.
Applications of price elasticity :
1.Inelastic demand for agricultural products helps to explain why bumper crops
depress the prices and total revenues for farmers.
2.Governments look at elasticity of demand when ----------------

6. Define revenue. Explain the types of revenue and the relationship
between TR, AR and MR
with an example of a hypothetical revenue schedule.
Answer: Revenue is the total amount received by a business or recognized as
earned when the business sells something, usually services and goods. In
modern accountancy, revenue is recorded when it is earned not when the cash is
received from customers. For example when a phone service provider records
revenue when calls are made not at the time when you pay the bills. This
principle is known as revenue recognition principle------------

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