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Take Home Assignment

1. The demand for pants fell because jeans were in fashion, what effect will it have on the
demand curve of pants and the price of pants?
2. Suppose price elasticity of demand for petrol is – 0.5. The government is eager to reduce
the consumption of petrol to conserve this depleting resource. How much per cent of a price
increase would be required to reduce the consumption of petrol by 10%?
3. Sunil’s budget line relating good X and good Y has intercepts of 150 units of Good X and 120
units of Good Y. If the price of good X is Rs. 12, what is Sunil’s income? What is the price of
good Y? What is the slope of the budget line?
4. Suppose you are an efficiency expert hired by a manufacturing firm that use two inputs labour
(L) and capital (K). The firm produces and sells a given output. You have the following
information PL=Rs..4, PK=Rs.100, MPL=4 and MPK=40. Is the firm operating efficiently? Why
or why not?
5. The production function for the personal computers for DATA company is given by Q = 10
KL where Q is the number of computers produced per day , K is the hours of labours input.
DATA’s competitor, SYSTEM company is using the production function Q = 10K0.6L0.4. If
both companies use equal amounts of capital and labour, which will generate more output?
Comment on returns to scale.
6. Given the total cost function
TC = 20,000 + 4Q +0.5Q2.
Determine the equations for TFC , TVC , AFC , AVC , AC and MC. Also draw these curves.
7. Complete the following Table:-
0 100
1 50
2 95
3 135
4 270
5 300
6 340
7 60
8 80
9 120
8. Prove that the marginal revenue equals the price of the product for a perfectly competitive
firm with a numerical example.
9. Total cost of producing radios is estimated at Rs. 50,000 per month when monthly output
is 1000. Fixed cost is Rs.10, 000. Calculate TVC, AC, AVC and AFC.
10. If the competitive market equilibrium price is Rs. 20 for a product. If price is raised to Rs.
30 what will happen? Show using graph.
11. Given the following total revenue and total cost functions
TR = 50 Q
TC = 10000 + 30 Q
a. Determine the breakeven rate of output.
b. Determine the output rate necessary to earn a profit of Rs. 20000.
12. What is capital budgeting? If IRR from a proposed investment is 12 per cent, while the
rate of interest payable on bank loan is 10 per cent, should the firm favour such investment?

In case of any difficulty contact Dr. (Mrs.) Dipti Sharma Deptt. of HSS.