Section A
Q1. Answer all the following seven parts in about 100 words each :
(a) Why do we need the constancy assumption of marginal utility of money in Cardinal Utility Analysis ? Justify your answer.
(b) Define the method of Compensating Variation of Income and the method of Cost Difference. Why is the latter method superior to the former one?
(c) Distinguish between laws of variable proportions and laws of returns to scale. Find out the elasticity of substitution in the case of fixed coefficient type production function.
(d) Find out the cost elasticity of output at the minimum point of the average cost curve in the short-run.
(e) Define peak-load pricing. How does it differ from third degree price discrimination ? Analyse graphically.
(f) Consider the equilibrium of a firm under perfect competition. Find out the condition for normal profit, or supernormal profit or loss (whichever is applicable for the firm) without using the average cost curve. Explain only diagrammatically.
(g) Explain the concept of divergence in the context of social and private welfare.