Production, Costs and Market Structures - Microeconomics - Economics Previous Year Questions

1

2021 · Economics · Microeconomics · Production, Costs and Market Structures

Humanities & Social Sciences-Economics (XH-C1) 2021

For the production function \( Q = F(K, L) = \sqrt{KL} \) with \( P_K = 4 \) and \( P_L = 2 \), find the values of \( K \) and \( L \) that will minimize the cost of producing 2 units of output.

A

\(K = 2\sqrt{3} ; L = 3\sqrt{2} \)

B

\(K = 2\sqrt{2} ; L = \sqrt{2} \)

C

\(K = \sqrt{2} ; L = 2\sqrt{2} \)

D

\(K = 2 ; L = 2 \)

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2

2021 · Economics · Microeconomics · Production, Costs and Market Structures

Humanities & Social Sciences-Economics (XH-C1) 2021

Assuming that external economies exist, when demand increases in a perfectly competitive market, in the long run, the price of the product

A

rises above the initial price (before the demand increase) and quantity increases

B

remains the same as the initial price (before the demand increase) and quantity increases

C

falls below the initial price (before the demand increase) and quantity increases

D

equals the initial price (before the demand increase) and quantity decreases

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3

2021 · Economics · Microeconomics · Production, Costs and Market Structures

Humanities & Social Sciences-Economics (XH-C1) 2021

XYZ Co. Ltd. is a costless monopoly from suburban Mumbai producing and selling exotic mushrooms. The demand for mushrooms is given by
\( Q = 700 - 100P \). Do you agree that XYZ will have a maximum possible total revenue of ₹1500?

A

Yes, the maximum possible total revenue is ₹1500

B

No, the maximum possible total revenue is less than ₹1500

C

No, the maximum possible total revenue is more than ₹1500

D

No, the maximum possible total revenue cannot be estimated

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4

2021 · Economics · Microeconomics · Production, Costs and Market Structures

Humanities & Social Sciences-Economics (XH-C1) 2021

Consider a duopoly market in which the market demand function is as follows: \( P = 40 - Q \). For the two firms producing with identical marginal costs of 10, the Bertrand-Nash equilibrium price will be:

A

40

B

10

C

20

D

30

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5

2021 · Economics · Microeconomics · Production, Costs and Market Structures

Humanities & Social Sciences-Economics (XH-C1) 2021

Consider a Cournot type \(n\)-firm natural spring oligopoly where the market demand for natural spring water is given by \(P(Q) = a - Q\), \(a > 0\). The \(n\) firms are symmetric. Each firm incurs a bottling cost of \(C_i = cq_i\), \(c > 0\) and \(a > c\). The equilibrium market price will be

A

\(\frac{(n + 1)}{a} + \frac{n(n + 1)}{c}\)

B

\(\frac{a}{(n + 1)} + \frac{nc}{(n + 1)}\)

C

\(\frac{na}{(n + 1)} + \frac{nc}{(n + 1)}\)

D

\(\frac{(a - c)}{(n + 1)} + \frac{c}{n(n + 1)}\)

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6

2021 · Economics · Microeconomics · Production, Costs and Market Structures

Humanities & Social Sciences-Economics (XH-C1) 2021

Suppose the demand for a new pharmaceutical drug, on which the manufacturer has a patent monopoly, is given by: \(Q = (100 - P)A^{0.5}\), where \(Q\) is output, \(P\) is the price and \(A\) is advertising expenditure. Production cost of the patented drug is given by: \(C(Q) = 60Q\). At the firm’s optimal choices, the ratio of advertising expenditure to sales revenue for the pharmaceutical product will be 1: _____ (in integer).

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7

2021 · Economics · Microeconomics · Production, Costs and Market Structures

Humanities & Social Sciences-Economics (XH-C1) 2021

The long-run cost function of all identical firms in a perfectly competitive industry is given by: \(C = 25q - 3q^2 + 1.5q^3\)
The market demand function is: \(P = 2500 - 0.25Q\)
The number of firms in the industry at equilibrium is __________ (in integer).

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8

2022 · Economics · Microeconomics · Production, Costs and Market Structures

Humanities & Social Sciences-Economics (XH-C1) 2022

Suppose that a firm has a technology represented by the following production function:
\[ Y(K, L) = K^x L^y \]
where \( K \) denotes capital, \( L \) denotes labour, \( Y \) denotes the maximum output that is possible to produce using capital \( K \) and labour \( L \). \( x \) and \( y \) are two positive real numbers. It is also known that the production function satisfies constant returns to scale. Then which of the following is true?

A

\(x + y = 0.5 \)

B

\(x + y = 1 \)

C

\(x + y = 1.5 \)

D

\(x + y = 2 \)

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9

2022 · Economics · Microeconomics · Production, Costs and Market Structures

Humanities & Social Sciences-Economics (XH-C1) 2022

What is the user cost of capital for a firm when the rate of depreciation of machine is 20% and the cost of financial capital is 15%?

A

37%

B

50%

C

35%

D

31%

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10

2022 · Economics · Microeconomics · Production, Costs and Market Structures

Humanities & Social Sciences-Economics (XH-C1) 2022

Suppose a firm has the following production function:
\( f(x_1, x_2, x_3, x_4) = \min\{x_1, x_2\} + \min\{x_3, x_4\} \)
The per unit cost of input \( x_i \) is given by \( w_i \), where \( i = 1, 2, 3, 4 \). Suppose that \( w_1 = 1, w_2 = 5, w_3 = 3 \), and \( w_4 = 6 \). If the firm is minimizing cost, which of the following input choices by the firm can be observed?

A

\(x_1 > 0, x_2 = 0, x_3 > 0, x_4 = 0 \)

B

\(x_1 > 0, x_2 > 0, x_3 = 0, x_4 = 0 \)

C

\(x_1 > 0, x_2 = 0, x_3 = 0, x_4 > 0 \)

D

\(x_1 = 0, x_2 = 0, x_3 > 0, x_4 > 0 \)

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11

2022 · Economics · Microeconomics · Production, Costs and Market Structures

Humanities & Social Sciences-Economics (XH-C1) 2022

A monopolist faces the following inverse demand function: \(P = 40 - Q\), where \(P\) denotes price and \(Q\) denotes quantity. The monopolist has zero fixed cost and a marginal cost of 5 per unit of output produced. The monopolist aims to maximize profit. Suppose the government imposes a tax of 5 per unit of output on the monopolist. As a result, the price charged by the profit-maximizing monopolist to the consumer increases by:

A

0

B

2.5

C

5

D

10

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12

2023 · Economics · Microeconomics · Production, Costs and Market Structures

Humanities & Social Sciences-Economics (XH-C1) 2023

A firm in a market with perfect competition has the following total cost (TC) function:
\[ TC(Q) = a + b(Q) \]
where Q is the quantity produced by the firm, a is the fixed cost and b(Q) is the variable cost. What will happen if the fixed cost increases?

A

In the short-run, the firm’s Average Variable Cost (AVC) curve will shift upwards.

B

In the short-run, the firm’s Average Total Cost (ATC) curve will shift upwards.

C

The firm will earn higher profits.

D

In the short-run, the firm’s Marginal Cost (MC) curve will shift upwards.

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13

2023 · Economics · Microeconomics · Production, Costs and Market Structures

Humanities & Social Sciences-Economics (XH-C1) 2023

A duopoly faces the inverse market demand function \( p = 120 - Q \), where \( p \) is the unit price (in Rs.) of the good being sold by firms A and B, and \( Q \) is the total output. Firm A has a constant marginal cost of Rs. 20, which is exactly half of firm B's constant marginal cost. There is no fixed cost for both the firms. If there exists a Cournot-Nash equilibrium, \( Q \) is ______ (in integer).

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14

2023 · Economics · Microeconomics · Production, Costs and Market Structures

Humanities & Social Sciences-Economics (XH-C1) 2023

Consider the following short-run cost function: \[ C(q) = 10q^3 - 80q^2 + 300q + 50 \] At the minimum average variable cost (AVC), the value of marginal cost (MC) is ______ (in integer).

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15

2023 · Economics · Microeconomics · Production, Costs and Market Structures

Humanities & Social Sciences-Economics (XH-C1) 2023

A monopolist is facing the demand function \(Q = \frac{100}{(P-1)}\), where \(Q\) is the quantity demanded and \(P\) is the price per unit of the good (\(P > 1\)). The average variable cost for the monopolist is \(\frac{4}{\sqrt{Q}}\) and the fixed cost is 10. The profit maximizing price is ________ (in integer).

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16

2024 · Economics · Microeconomics · Production, Costs and Market Structures

Humanities & Social Sciences-Economics (XH-C1) 2024

Which of the following statements is/are TRUE?

A

A firm experiences economies of scale when an increase in its output of a good or service brings a reduction in the average total cost of production

B

A firm experiences economies of scope when an increase in its range of goods produced brings down the average total cost of production

C

A firm experiences economies of scale when an increase in the range of products produced brings down the short-run average total cost of production

D

A firm experiences economies of scope when an increase in its output of a good or service brings a reduction in the marginal cost of production

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17

2024 · Economics · Microeconomics · Production, Costs and Market Structures

Humanities & Social Sciences-Economics (XH-C1) 2024

An industry comprising only two firms produces a homogenous product where the market demand function is given by \(P = 200 - 2(q_1 + q_2)\) where \(q_1\) and \(q_2\) are the output levels of firm 1 and firm 2, respectively. The individual firm's cost functions are \(TC_1 = 4q_1\) and \(TC_2 = 4q_2\), where \(TC_1\) and \(TC_2\) are total costs of firm 1 and 2, respectively. If firm 2 is a Stackelberg Leader, and firm 1 is a Follower, then the profit of the Stackelberg Leader will be ______ (rounded off to two decimal places).

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18

2024 · Economics · Microeconomics · Production, Costs and Market Structures

Humanities & Social Sciences-Economics (XH-C1) 2024

In an economy, the effort level of a worker in firm \(i\) is denoted by \(e_i\) and depends on the wage \(W_i\) received by the worker from the firm, and the minimum wage \(W_0\) is set by the government. The effort function is given by \(e_i(W_i, W_0) = \sqrt{W_i - W_0}\). If the firm employs \(N_i\) unit of workers, then the efficiency unit of labour employed by the firm is \(e_iN_i\). The production is based on only the efficiency unit of labour, and the production function is given by \(F(e_iN_i) = \log_e(e_iN_i)\). If the minimum wage set by the government is 10, and the profit maximizing firms sell the good in a competitive market at price \(P\) by choosing \(W_i\) and \(N_i\), then the profit maximizing wage set by the firm will be ______ (rounded off to one decimal place).

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19

2024 · Economics · Microeconomics · Production, Costs and Market Structures

Humanities & Social Sciences-Economics (XH-C1) 2024

In a perfectly competitive market, suppose the market demand curve is given by \(P = 10 + W - Q\), where \(P\) is the market price, \(W\) is the average wealth of the consumers in the market, and \(Q\) is the industry output. The total cost function for a representative firm is given by \(C(q) = q^3 - 2q^2 + 5q\), where \(q\) is the output of a firm. If \(W = 80\), then the total number of firms in this industry in the long-run will be ______ (in integer).

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20

2024 · Economics · Microeconomics · Production, Costs and Market Structures

Humanities & Social Sciences-Economics (XH-C1) 2024

Consider a duopoly market where Firm 1 and Firm 2 produce differentiated products such that the demand function of each firm is given by: \(q_1(p_1, p_2) = 18 - p_1 + p_2\) \(q_2(p_1, p_2) = 18 + p_1 - p_2\) Here, \(q_1\) and \(q_2\) are the outputs produced by Firm 1 and Firm 2, respectively, and \(p_1\) and \(p_2\) are the corresponding per unit prices. Cost of production for the \(i^{th}\) firm is given by \(C_i(q_i) = 2q_i \; \forall \; i = 1, 2\) The firms compete in prices. The price set by Firm 2 such that the market is in Nash equilibrium will be ______ (in integer).

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