# BIM (TU) Question Paper 2014 – Micro Economics | Fourth Semester

## Tribhuvan University | Faculty of Management BIM / Fourth Semester / ECO 201: Micro Economics Year: 2014 (2071)

Full Marks: 60 | Time: 3 Hrs
Candidates are required to give their answer in their own words as far as practicable.

Attempt ALL questions
Group “A” – Brief Answer Questions: [10 X 1 = 10]

1. Prepare a list of uses of microeconomics in business decision making.
2. What will be the shape of Engle curve for luxurious goods and inferior goods?
3. List out the properties of Cobb-Douglas production function.
4. What do ‘a’ and ‘b’ represent in demand function: Qx = a – bPx?
5. State the condition for equilibrium according to marginal productivity theory of wages.
6. Write any two factors that limit monopoly power in the world.
7. If the marginal cost of monopoly firm at its equilibrium is Rs 10 and price elasticity of its demand equals 2.5, what would be equilibrium price?
8. A firm’s total revenue is Rs 200,000 its cost is Rs 220,000 with fixed Rs 110,000. Should the firm stay in business? Give proper reason.
9. What are the characteristics of LAC?
10. What is the main difference between fixed inputs and variable inputs?

Group “B” – Short Answer Questions: [6 X 5 = 30]

11. Microeconomics is the study of allocating limited resources to solve the problems of optimizations. Justify this statement with suitable examples.
12. What is price elasticity of demand? Explain its issue in business decision making.
13. Define isoquants. Explain its properties.
14. What is monopoly? How are the price and the output determined under monopoly in long-run?
15. All portions of SMC from and above shutdown point reveal short-run supply curve of a competitive firm. Give proper reasons to justify this statement.
16. State and explain the liquidity preference theory of interest.
17. Consider the following preference schedules: [2+2+2+2+2]

 Schedule I Schedule II Combinations X Goods Y Goods Combinations X Goods Y Goods ABCDEF 102030405060 724220842 GHIJKL 203040506070 906244302216

a) Graph schedule I and II and label them by IC1 and IC2
b) Sketch the budget line when Px = Rs 80 and Py = Rs 40 and consumer’s budget = Rs 3,200 and identify that what combination of X goods and U goods will put the consumer at an optimum point at IC1?
c) Let the price of X goods drop to Rs 40 per unit at constant price of Y goods and consumer’s budget. Draw the new budget line and identify that combination of X and Y goods will put the consumer at an optimum point at IC2? Does is reflect price effect?
d) Let, government impose 40% tax on consumer’s income. Draw new budget line at Px = Rs 40 and Py = Rs 40 and also identify what combination of X and Y goods will put the consumer at an optimum point? Does it reflect income effect? Does it prove that price effect is decomposed into income and substitution effects? Give reasons.

18. Consider the following cost schedule. [2 + 4 + 4]

 Output (Q): 0 1 2 3 4 5 6 7 8 9 Total Cost (TC) 300 330 354 372 396 450 540 672 840 1080

a. Compute TFC, AFC, AVC and AC.
b. Using schedule, prove that AC is influenced the trend of AFC and AVC.
c. Graph AFC, AVC and AC and prove that AC curve is derived by the vertical summation of AFC and AVC curves.

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