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Scarcity of resources

(1)

Production function is a technological relationship between physical inputs and physical output

(1) (1) (1)

Equlibrium price will fall. Earning of above- normal profit by the existing firms.

Cost of producing a good is the sum of actual expenditure on inputs and the imputed expenditure on the inputs supplied by the owner.

(1)

Marking Scheme

1. 2.

3. 4. 5.

6.

  • 1.

    Rise in the price of the substitute good.

  • 2.

    Fall in the price of complementary good.

  • 3.

    Rise in income (in case of a normal good)

  • 4.

    Fall in income (in case of an inferior good)

  • 5.

    Increase in taste for the good. (Any three) (1x3)

  • 7.

    Es = 1 if the curve starts from the origin

Es> 1 if the curve starts from the y-axis E<1 if the curve starts from the x-axix

8.

Downward sloping concave PP curve shows increasing Marginal Rate of Transformation (MRT) as more quantity of one good is produced by reducing quantity of the other good. This behaviour of the MRT is based on the assumption that all resources are not equally efficient in production of all goods. As more of one good is produced, less and less efficient resources have to be transferred to the production of the other good which raises marginal cost i.e. MRT.

(3)

OR

9.

Qty. sold.

Price

ATC

TR

TC

Profit

(Units)

(Rs. per unit)

(Rs)

(Rs)

(Rs)

(TR-TC)

7

10

6

70

42

28

8

9

5

72

40

32

9

8

6

72

54

22

10

7

7

70

70

0

Profit maximizing output = 8 units

(2) (1)

The problem means that who will buy the goods produced ? Clearly those who have income will buy. people earn income in the form of wages, rent, interest and profit. This reduces the problem to the problem of distribution of income among people.

(3)

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