ECONOMICS DEPARTMENT, PRESIDENCY UNIVERSITY

Semester One
END SEMESTER 2021-22
ECON 1C2 MATHEMATICS FOR ECONOMICS
Date: 25.02.2022
Starting time: 10.00 AM Uploading deadline 12.45 Noon

Set B
Answer all questions.
Scanned copies of handwritten answers should be emailed to zakir.econ@presiuniv.ac.in by
12.45 PM in pdf form. If any student faces problems in emailing their answers, they are
requested to inform me immediately over phone: 9830467551.
The set that you are answering, and your Roll Number and Registration Numbers should be
written clearly on the first page. Pages should be numbered sequentially

1. Answer the following questions: (9 x 2 = 18)

[i] A producer is operating in a market where the demand curve is elastic of -1.35. His
marketing manager advises him to reduce price in order to increase Total Revenue. Is the advice
sound?
[ii] In a two commodity world (x1, x2) the income elasticity and own price elasticity of x1 are
estimated to be 1.02 and -2.52, respectively. Explain why there must be an error in the estimate
of at least one of the elasticity. (Hint: First find out cross price elasticity. Remember this is a
2-good world and use Euler’s theorem to check whether the estimates are consistent)
[iii] AVC and ATC will approach each other asymptotically as output increases. Is the
statement true/false? Justify.
[iv] Show that the expansion path of a homothetic function is linear.
[v] A commodity is being produced in a monopoly market (i.e. by a single producer). The
Government is facing a financial problem and wants to obtain revenue by imposing taxes in
the market. At the same time, the Government does not want that production level changes.
Which tax should the Government impose—unit tax on output sold, or profit tax?
[vi] Given the Total Cost function, C = Q3 – 5Q2 + 12Q + 75, write out a variable cost (VC)
function. Find the derivative of the VC function, and interpret the economic meaning of the
derivative.
[vii] A producer has the profit function  = x4 – 8x3 – 80x2 + 15. Find out the profit maximising
output level and confirm, using second order conditions, that it is a maximises profit.
[viii] Graphically show that the demand function is homogenous of degree zero in prices and
income.
[ix] Show that expansion of a determinant by alien cofactors will yield a value of zero.
2. Define weak and strong quasi-concavity. Prove that a strictly concave function will always
generate a strictly quasi-concave function. Is the reverse true? 6
3. Derive the first order and second order conditions for maximising a function with one
variable. The conditions should be generated only up to the fourth order derivative, and then
dy
stated for the n-th order. Why do we say that = 0 is only a necessary condition for
dx

optimisation? 8
4. Congratulations! You have been appointed as Chief Economic Advisor by the Wombats.
But, with great power comes responsibility. The wombats ask you to find out how much they
should produce. They have given the following information about their economy:
0.45 0.34 0.15 x 45
[0.10 0.28 0.25 ] [y] = [28]
0.00 0.00 −0.18 z 63
Interpret the meaning of 0.10 and 0.00 (in the first matrix) and 28 in the RHS matrix. Does the
above equation system describe an open or closed system? Why do you think the matrix is not
correct? Suppose that the matrix does turn out to be correct. What is your recommendation
about z? What should be the output levels of the remaining two products (x and y)? 8
(Alternative question to Q No 4: for backlog students only)
Distinguish between: (i) Supremum and infimum (ii) Convergence and divergence (iii) Positive
monotonic transformation and negative monotonic transformation (iv) Right hand and left hand
limit. 8