Indian Institute of Management, Ahmedabad

Indian Institute of Management, Ahmedabad

ECONOMIC ANALYSIS (EA) Date: August 3, 2005 (PGP-I, First Term) Time: 90 minutes

Midterm (Closed Book)

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Name: Section:

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Select the most appropriate one alternative from the ones given under each of the following statements to complete the statement. Write a, b, c or d, etc., in the empty box provided in each statement. No credit for multiple answers. For correct answers 2pts, and for wrong answer (-)1 pt. The best 45 answers will be picked up. Note: - this exam has 10 pages.

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1) Copper being an exhaustible natural resource, the long-run supply curve of its secondary production (i.e., production out of scrapped copper) as compared to its short-run counterpart will in general be:

a. Flatter;

b. Steeper;

c. The same;

d. Can't say.

2) Suppose the supply and demand equations of natural gas are: Qs (supply) = 14 + 2Pg + 0.25Po and Qd (demand) = -5Pg + 3.75Po, where Pg and Po are prices of gas & oil, respectively. If there is a 25% increase in the price of oil from Po=8, then the price of gas, Pg will

a. Rise by 25%;

b. Rise by 50%;

c. Rise by more than 50%;

d. Rise by less than 25%;

e. None of the above.

3) From the viewpoint of labor in a developing country, a Minimum Wages Act is always:

a. A welcome move;

b. An un-welcome move;

c. A mixed blessing;

d. None of the above.

4) A positive vertical axis intercept of an upward-sloping supply curve of labor:

e. Has no economic justification;

f. Has an economic justification as the reservation price of labor, only if there is no unemployment of labor;

g. Has an economic justification as the reservation price of labor, even if there is unemployment of labor;

h. None of the above.

5) As Cournot equilibrium occurs at the point of intersection between the reaction curves of the duopolists (assuming it exists and is stable), return to the same equilibrium point from any initial non-equilibrium point

a. is always ensured by Cournot assumptions;

b. is not ensured by Cournot assumptions;

c. is only momentarily ensured;

d. is only occasionally ensured.

6) Assuming that the duopolists are producing a homogeneous good with a market demand curve, given by an equation : P = 500 - 0.5Q, where Q is total output of the two, with Q1 and Q2 being their individual output levels, and their average costs are constant at 100 and c, respectively, a Cournot solution will always ensure simultaneous existence of both the duopolists with positive levels of output,

a. As long as c is less than 300;

b. As long as c=300;

c. Only if c=200;

d. Only if c is larger than 200.

7) Free entry and free exit under monopolistic competition will always ensure achievement of

a. the same long run equilibrium as holds under perfectly competitive conditions;

b. a long run equilibrium where the firms will enjoy super-normal profits;

c. a long run equilibrium with overcapacity;

d. none of the above.

8) Under decreasing cost conditions, a single monopolist is preferred over several small firms because

a. A single monopolist can tap the benefits of economies of scale more than a large number of small competitive firms;

b. A single monopolist passes on to the consumers the full benefits of economies of scale;

c. A competitive solution doesn't exist;

d. None of the above.

9) The total marginal cost curve of a multi-plant monopolist indicates

a. The sum total of marginal costs across the plants for each level of output;

b. The sum total of outputs from multiple plants corresponding to each marginal cost level;

c. The apportionment of total marginal cost across plants;

d. The average cost of total output.

10) The relative tax burden of the consumer vis-à-vis the producer of a specific per unit excise duty on alcohol will be

a. Higher if the tax is collected from the producer rather than the consumers;

b. Higher if the tax is collected from the consumers rather than the producer;

c. The same irrespective of the source of tax collection;

d. None of the above.

11) If the incidence of a specific per unit tax is fully absorbed by the producer, it must mean

a. The supply curve is perfectly inelastic;

b. The supply curve is perfectly elastic;

c. The demand curve is perfectly inelastic;

d. None of the above.

12) The emergence of a black