Project appraisal

Short Questions
Market and demand Analysis
 Producer theory
 Consumer theory
1) Producer theory
The producers theory is concerned with the behavior of firms in hiring and combining
productive inputs to supply commodities at appropriate prices

1) ISO Quants
ISO__equal
Quant__quantity
Locus of points of different combination of two inputs used for producing same output.

2) ISO Cost Line

Combination of inputs that a producer can purchase with a given level of output.
 Co=Px1 X1 + Px2X2

3) Firm Equilibrium
A firm is in equilibrium when it has no desire to change (increase or
decrease) its output levels. At the equilibrium point, the firm earns
maximum profits.

MR= MC

2) Production function
I. Production function with one variable input
production with one variable input (labour) follows the law of increasing returns. According to this
law, output would increase at an increasing rate as the quantity of labour increases. According to
this law, output would increase at a diminishing rate as labour is used more and more.

II. Cross Production function with two variable inputs

Production Function with two Variable Inputs. A firm may increase its output by using more of two
variable inputs that are substitutes for each other, e.g., labour and capital. There may be various
technical possibilities of producing a given output by using different factor combinations

3)Market structure
 1) Perfect Competition Market Structure
2) Monopolistic Competition Market Structure
3) Oligopoly Market Structure
4) Monopoly Market Structure
I. Monopoly
A market structure characterized by a single seller, selling a unique product in the market. In a
monopoly market, the seller faces no competition, as he is the sole seller of goods with no close
substitute. He enjoys the power of setting the price for his goods. ...

II. Oligopoly
Oligopoly is defined as a market situation in which there are few sellers and
producers dealing is either homogeneous and differentiated products
III. Monopolistic competition
Monopolistic competition refers to a market structure in which a large number of
sellers sell differentiated products, which are close substitutes of one another.
IV. Perfect competition
perfect competition is a type of market form in which there are many companies that sell the same
product or service and no one has enough market power to be able to set prices on the product or
service without losing business.

3) Consumer theory
Consumer theory is the study of how people decide to spend their money based on
their individual preferences and budget constraints

I. Consumer preferences
Customer preference is what type of product an individual customer likes and
dislikes. 

II. Budget constraint

In economics, a budget constraint represents all the combinations of goods and
services that a consumer may purchase given current prices within his or her given
income

III. Elasticity of demand

Elasticity of demand is the responsiveness of the quantity demanded of
a commodity to changes in one of the variables on which demand depends. In other
words, it is the percentage change in quantity demanded divided by
the percentage in one of the variables on which demand depends.”
A. Price elasticity of demand
The price elasticity of demand is the response of the quantity demanded to change in
the price of a commodity. It is assumed that the consumer’s income, tastes, and
prices of all other goods are steady. It is measured as a percentage change in the
quantity demanded divided by the percentage change in price
B. Income elasticity of demand
The income elasticity of demand is the degree of responsiveness of the quantity
demanded to a change in the consumer’s income.
C. price elasticity of demand
The cross elasticity of demand of a commodity X for another commodity Y, is the
change in demand of commodity X due to a change in the price of commodity Y.