Value based questions-Micro Economics- Unit III

Producer behaviour & Supply

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1) Identify and define the stages underlying the schedule given below. Also,
identify the value based on the behaviour of marginal product: (4)
Fixed 1 1 1 1 1 1 1 1 1
input in
units
Variable 1 2 3 4 5 6 7 8 9
input in
units
Marginal 10 12 10 9 7 4 0 -2 -4
product

Answer:
The underlying law is the Law of Diminishing Returns.

As more and more units of variable input are combined with fixed quantities of fixed
inputs beyond a certain point the marginal product falls with further employment of it.
Stage 1: MP increases and is the stage of increasing returns to a factor
Stage 2: It is stage of diminishing returns to a factor. In this stage MP decreases i.e.
MP falls but remains positive and MP falls and becomes negative.
Analysis-> whatever is the industry diminishing returns will set in sooner or later and
all economies face the same.

VALUE: Analytical Thinking

2) In the second stage of the operation of law of variable proportion both TP and
AP increase. State true or false and identify the value and the significance of
this stage. (3)
Answer:
False, in the ii stage TP increases at a diminishing rate, but AP increases till it equals
MP then it falls.
VALUE: Efficient utilisation of resources.

.
3)Why is short run MC curve ‘U” shaped? How does it affect the behaviour of TVC?
Also identify the value. (3)
Answer:
i) Due to the operation of the Law of Variable Proportions.
ii) When MC decreases, TVC increases at a diminishing rate and when MC increases,
TVC increases at an increasing rate

VALUE: Analytical thinking.

4)The difference between AC and AVC decreases with the increase in the output.
Explain why and state the value. (4)

Answer:
Due to the presence of AFC which is not only ever diminishing but never become
zero as AFC= TFC/ Q.
VALUE: Analytical thinking.

5))With the increase in the provision of telephonic services by the private sector the
services provided by the Government sector has come down.(1)
i) What is the nature of relationship that exists between these services? Identify the
value.

Answer:
i) These services are substitute to each other
Value: consumer awareness.
6) With the increase in the use of mobile phones, the use of landlines has come
down.(1)
i) What is the nature of relationship exists between these services? Identify the value.

Answer:
i) These services are substitute to each other
ii) Value: consumer awareness/environmental degradation

7) With the increase in the use of mobile phones, the use of landlines particularly
provided by the government sector has come down” (3)
i) How does this change affect revenue of the government and why?
ii) Highlight the value.

Answer:
i) As the supply of quality services by the government decreases revenue also fall as
we can carry mobile anywhere and it is cost efficient and convenient.
ii) Value:Empathy.

8)How can a firm under perfect competition earn only normal profit in the long run,
when a monopolist can earn abnormal profit both in the short run and long run as the
condition of producer’s equilibrium(MR=MC) is the same for both the markets.
Highlight the value which is emphasised and affected.(3)

Answer:
Under PC there are large number of buyers and sellers,selling homogeneous products
and free entry and exit whereas under monopoly he is the only seller, restricted entry
and no close substitutes.

Value :care&concern/consumer exploitation affects welfare

9). Is MR=MC a necessary condition for a firm to be in equilibrium?(1)
Identify the value.

Answer:
Yes necessary, but not sufficient because MC must be rising.
Value: Critical thinking.

10)How does the shortage of LPG affect its equilibrium price and quantity?
Identify the value.(3)

Answer:
Supply decreases. Now at a given price less is supplied which increases the price and
decreases the quantity(leftward shift)

Value: Social Responsibility/conservation of energy.

(As DD is more than the SS households must economise the usage of resources like
LPG, ELECTRICITY and other ENERGY resources. )

11) Due to enormous increase in the price of land , the farmers prefer to sell the land
to the real estate promoters instead of taking chances in the agricultural earning. Is it
a healthy trend for a country like india?

Ans: It is not an encouraging practice, though, the farmers are benefitted temporarily.
It will lead to severe shortage of food grains and import from other countries. The
Govt. has to amend strict legislation to stop the conversion of agri.lands for profit
sake.
Value: social responsibility.