Introductory Microeconomics | Question Paper – 2014 | Semester : Spring

gIntroductory Microeconomics
Pokhara University | Old Question Paper
BBA | Second Semester
Year: 2014 | Semester : Spring

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Section “A [10 x2]
Very Short Answer Questions
Attempt all the questions

1) What is microeconomics?
2) What do you understand by market equilibrium?
3) As a result of 10% fall in price of goods ,its demand changes by 20%. Find out the price elasticity of demand and also comment on the good.
4) What is meant by marginal rate of substitution?
5) Distinguish between fixed and variable cost.
6) Why AR and MR are curves horizontal straight line under perfect competition?
7) List out the features of monopoly.
8) What is meant by oligopoly?
9) List out any four causes of wages differentials.
10) What is monopolistic competition?

Section ‘B'[6×10]
Descriptive Answer Questions
Attempt any six questions.

11) From the following cost function calculate TFC, AFC ,TVC and AVC.

Output 0 1 2 3 4 5 6
TC 120 180 200 210 225 260 330

12) Suppose that the demand and supply function for good X are:
Qd =50-8p and Qs=-17.5+10P
• What are the equilibrium price and quantity?
• What is the demand and supply situation if price is Rs 2.75? What do you expect to happen? Why?
• At equilibrium price ,determine price elasticity of demand and interpret your result.

13) Define isoquant. Explain the various properties of isoquants.
14) Let revenue function TR=100Q-4Q^2 and cost function TC =50+6Q^2
Compute TR, TC and profit at output level 0 to 10 and determine profit maximizing output and profit.
Compute MR and MC function and determine profit and determine profit maximizing output and profit.

15) What is meant by brain drain? What are its causes and consequences?
16) Problem of scarcity is the root of all economic activities. Explain.
17) How price of a factor is determined in perfectly competitive factor market?

Section “C” [20]
Case Analysis
18. Read the case situation given below and answer the questions that follow:

The US congress passed the fair Labour Standard Act, which established a The $0.25 per hour. Since then, the minimum wage has been raised the wage was $3.35 in 1991 and $4.25 in 2001, and it has been $5.15 since 2007, in real terms minimum wage in 2012 was where it stood 1970. Coverage of the minimum wage was extended over the years, so that today 85% of all workers in the US are covered. Since skilled workers generally have wages well above the minimum wage, they are not affected by it. Thus most of the effect of minimum wages is on unskilled workers. We can analyse the effect of minimum wage on unskilled workers.
In a perfectly competitive labour market, the equilibrium wage would be $4.00 per hour and equilibrium level of employment would be 4 million workers.The imposition of federal minimum wage of $5.15 per hour would result in forms hiring only 3.9 milion workers as opposed to 4.10 million workers willing to work at this minimum wage. Thus, the minimum wage of $5.15 per hour would lead to a total unemployment gap of 200,000 workers from the equilibrium rate $4.00 per hour. This is composed of the 100,000 additional workers who would like to work at the minimum wage plus the dis-employment effect of another 100,000 workers as the firms employ fewer workers at the above equilibrium minimum wage. On the other hand, the increase in the minimum wage from $4.25 to $5.15 per hour increases the gap by 100,000 jobs. While an increase of a minimum wage benefits those unskilled workers who remain employed, some unskilled workers would lose their jobs and still more would like to work but could but find employment.
a. Why the skilled workers are unaffected by the minimum wage policy? Present the suitable logic.
b. Does the minimum wages policy really reduce employment? Justify your argument.
c. Do you believe that the higher minimum wage eventually create more jobs? Why?
d. Is the minimum wage policy appropriate? Justify.

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