AIOU Course Code 801-1 Solve Assignment Spring 2022

MSC Economics Solved Assignments

ALLAMA IQBAL OPEN UNIVERSITY ISLAMABAD

Course: Introduction to Microeconomics (801

(Department of Economics)

ASSIGNMENT NO: 1

 

CORSE CODE:                               

NAME:                                             

ROLL NO:                                        

REG.NO:                                          

LEVEL:                                               MSc Economics

SEMESTER:                                     Spring 2022       

                                                        

 

Q.1 Discuss the scope and methodology of microeconomics.

ANS

Microeconomics is the study of the economic actions of individuals and well-defined groups of individuals. The micro model is built slowly on the individuals and deals with interpersonal relations only.

The Scope of Microeconomics studies small, individual units. This is obvious from the  mentioned definitions.  As mentioned by H. Craig Peterson and W. Cris Lewis “Micro-economics focuses on the behavior of the individual actors on the economic stage: firms and individuals and their interactions in markets.” Likewise, in the words of E.K. Browning and J.M. Browning “Micro-economics is the branch of economics based on the economic behavior of ‘small’ economic units: Consumers, workers, savers, business managers, firms, individual industries and markets, and so on”.

Scope of Microeconomics

The study of individual units or individual consumers, individual firms or their small group form the scope of micro-economics. Broadly speaking, the scope of microeconomics covers the following topic.

    1. Theory of demand
    2. Theory of production and costs
    3. Theory of product pricing
    4. Theory of factor pricing
    5. Theory of economic welfare

 

Q.2 Explain the main characteristics of indifference curves and their justifications.

ANS

Characteristics of Indifference Curves. 1. Indifference curves slop downward to the right. 2. Every indifference curve to the right represents a higher level of satisfaction. 3. Indifference curves cannot intersect each other. 4. Indifference curve will not touch the axis.

Characteristics of Indifference Curves

The indifference curves have a number of attributes and interesting properties which have come to be known as characteristic features or properties of indifference curves. The following are some of the important features.

1. Indifference curves slop downward to the right

This is an important and obvious feature of indifference curves. The sloping down indifference curve indicates that when the amount of one commodity in the combination is increased, the amount of the other commodity is reduced. This must be so if the level of satisfaction is to remain constant on the same indifference curve.

Let us consider the logical inferences or conclusions if the indifference curve does not slope downwards from left to right.

 

 

 

Q.3 c

ANS

Homogeneous are those which makes completely which cannot be separated also and nonhomogeneous are those which cannot dissolve completely and cannot tell separated easily

Homogeneous production functions consist of a broad array of functions with a special characteristic. A production function is said to be homogeneous of degree n if when each input is multiplied by some number t, output increases by the factor tn.

A form of nonhomogeneous production function is utilized to compute marginal productivities, various elasticities, optimum input ratios, and the like, for different levels of inputs and outputs. Such comparisons are relevant for labor negotiations, capital investment, and control by either a parent corporation or a government regulatory agency.

production function gives the technological relation between quantities of physical inputs and quantities of output of goods. The production function is one of the key concepts of mainstream neoclassical theories, used to define marginal product and to distinguish allocative efficiency, a key focus of economics. One important purpose of the production function is to address allocative efficiency in the use of factor inputs in production and the resulting distribution of income to those factors, while abstracting away from the technological problems of achieving technical efficiency, as an engineer or professional manager might understand it.

For modelling the case of many outputs and many inputs, researchers often use the so-called Shephard’s distance functions or, alternatively, directional distance functions, which are generalizations of the simple production function in economics.[1]

In macroeconomics, aggregate production functions are estimated to create a framework in which to distinguish how much of economic growth to attribute to changes in factor allocation (e.g. the accumulation of physical capital) and how much to attribute to advancing technology. Some non-mainstream economists, however, reject the very concept of an aggregate production function.[

 

Q.4 There is a smooth isoquant and an isoquant with kinks, which one is better approximation to a real production function and why?

ANS

Definition: An Iso-Quant curve is the geometrical representation of the different combinations of input factors employed to produce the given level of output.

Types of Iso-quant Curves

The iso-quant curves can be classified on the basis of the substitutability of factors of production. These are:

 

Q.5 With the help of expansion path derive long run total cost curve.

ANS

Production expansion path and longrun total cost curve On an infinitely dense map of isoquant curves, consider the different equilibrium isocost lines. In this way, uniting the different production methods that are technically and economically efficient, we would obtain the “expansion path of production”.

Long Run Cost Curves

The long run is different from the short run in the variability of factor inputs. Accordingly, long-run cost curves are different from short-run cost curves. This lesson introduces you to Long run Total, Marginal and Average costs. You will learn the concepts, derivation of cost curves and graphical representation by way of diagrams and solved examples.

The Concept of the Long Run

The long run refers to that time period for a firm where it can vary all the factors of production. Thus, the long run consists of variable inputs only, and the concept of fixed inputs does not arise. The firm can increase the size of the plant in the long run. Thus, you can well imagine no difference between long-run variable cost and long-run total cost, since fixed costs do not exist in the long run.

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