Qh: An What is meant by normal profit? ao BPs js in The level of profit which is just sufficient to induce a firm e aoe & an industry, is called normal profit) It is equal to the remuneration of firm's entrepreneur which he can get as a manager of another firm instead of starting his ‘own business. Q.2: What is meant by super normal (abnormal) profit? ‘Ans: (If a firm is earning more profit than normal profit, economists call this profit super normal profit} In fact this super normal profit is the profit of the firm ie ens ipelude normal profit in costs of production. 4 ME Ys fo 6 bso el uf Tae What fe tacaat by Monopély?* yA ans: [Monopoly is that situation of market, in which a certain good is being produced tite by a single firm and no close substitute of this good is available in the market) For example, WAPDA has monopoly over the production and supply of electricity in Pakistan. Q.4: When is a firm in equilibrium ? ‘Ans: (A firm is said to be in equilibrium when its marginal cost is equal to its marginal revenue i.e. MC=MR,/in this situation firm's profit is maximum, Q.5: What are the two different approaches to explain the equilibrium of a firm? Ans: Following are the approaches to explain firm's equilibrium. @ Total revenue and total cost approach. (ii) Marginal revenue and marginal cost approach, Q6;- eos kha of equilibrium of a firm under perfect competition in the Ans: There are two conditions of equilibrium of a firm under short run. @ Firm’s marginal cost (MC) is equal to its marginal revenue. Gi) Marginal cost curve must intersect marginal revenue curve from below. perfect competition in theAr. ty QUESTION! Sig ONT QUESTIONS State conditions of equilibri < =< jilibrium of a firm under perfet competi te ans: \There are three conditions of equilib Fj Taos eo quilibrium of a firm under perfect competition in DIN) Marzinal costis equal to marginal revenue = (i) Marginal cost curve must intersect marginal revenue curve from below. ‘Average cost is equal to average revenue (i) If the three conditions exist, then following equation represents firm's pee, equilibrium firm's Marginal cost = marginal revenue = Average revenue (Price) = Average cost. ing his MC MR = AR (P) =AC inthis situation firm earns only normal profit Qs: Write different situations of firm’s equilibrium under perfection competition s profit im the short run. : ; ae eo ees ay Ae There may tbe four situations of firm’s equilibrium under perfect competition in the short run. @__ Firmis earning super norm Firm is earning normal profit. | profit. @ yroduced jit) Firm bests minimum loss (firm is covering variable cost wholly and itis covering rket) For fixed cost partially.) eriGity if jy) Shut down situation of the factory. (Firm is covering only its variable costs and facing losses equal to fixed costs.) Q9: Make a diagram showing abnormal pr competition in the short run. oft of a firm under perfect Ans: y "MU eee ‘Quamity of outpat‘mal profit of a firm un Q.10: Make a diagram jhowing nor in the short run. Ane Pe AR= MK Q Quantity of output Q.11; Make a diagram showing minimum loss of a firm under perfect competition in the short run, Ans: P=AR=MR Q Quantity of outputnl gHORT QUESTIONS ™Petitigg ‘9,12: Make a diagram show! SL SCRE 12: Make « diagram showing abnormal | Qu1% firm under perfect competition raphe eat at ‘An: PeaR=MR Peake ma Shut down point ol a x Quantity of output 13: Make a diagram showing equilibrium of a firm under perfect competition in the long run. Ans: PeAK= MR 2 0 i 5 ‘Quantity of outputPRINCIPLES OF ECO! rm under monopoly. diagram showing abnormal profit of fi ie e Quantity of output Q.15: Describe the total revenue and total cost approach to find the equilibrium of a firm. The quantity of output at which the difference between total revenue and total costs, is the highest, firm will be camming maximum profit at it and the firm will be in the state f equilibrium. Fr Describe the marginal revenue and marginal cost approach to find the equilibrium of a firm. A firm will be in equilibrium position when it is producing the quantity of output at which marginal revenue equals marginal cost. Q.17: What is meant by Equilibrium of an Industry? Ans: (When in an industry all the existing firms eam just normal profit) There is no possibility of any existing firms to leave the industry and no new firm will like to enter that industry. Then it is called equilibrium of an industry. / When does a firm under perfect competition carn Normal Profit? When a firms under perfect competition covers its cost of production, only it earns normal profit. When a Monopolist Firm lowers down the price of its commodity? Monopolist Firm lowers down the price of its commodity when it wants 10 increase its sale. 5 Ans: Ans: Q.18:. Mri pomsovernome ‘i O28: Differentiate between pure competition and perfect competition. ags: Pure competition: If in a market following two conditions exist, then it is saia that there exists pure competition in that market (There are large number of buyer and seller in the market and no buyer or seller can influence the price by his individual action. {iy Allthe units of the commodity are homogeneous . Perfect competition: If in a market, in addition to the above mentioned conditions, the following conditions also exists, then it is said that there exists perfect competition in that market. (Theres free entry and exit ofthe firms in the market Gi) Buyers and sellers are having perfect knowledge about the conditions of the market. (iii) Factors of production are perfectly mobile. eK as ar me a cee eSCONOMICS (COM. Panty, PRINCIPLES OF E RESOURCE PRICING SS Qs: Ans: Ans: Write definition of Marginal Productivity theory? If the state of Perfect completion prevails in the sean reward 10 each factor of Production will be equal to its respective marginal Product What is meant by Marginal revenue Product? i Marginal Revive Product is the amount obtained by selling marginal Product in the market, What Is meant by Derived Demand? Whenever in order to meet the demand for a commodity, some other Commodity is demanded, then demand for other commodity is called derived demand. For example for the construction of a house, bricks, cement, iron rods and pebbles of stone etc are demanded, In this example demand for house is direct demand while demand for bricks, cement and iron rods etc is driveled demand, Write equation of marginal Product of factors regarding marginal productivity theory. Managerial Physical Product of Factor A . Marginal Physical Product of Factor B Price of Factor A Price of Factor B Managerial Physical Product of Factor N Price of Factor N Write four assumptions of Marginal Productivity Theory? () All the units of each factor of Production are identical in view of theit Productivity. (2) Factors of production are Perfectly mobile, (3) Supply of factors of Production is Perfectly elastic, (4) All factors are substitutes of each other, Who did present the marginal Productivity Theory? Prof fed Marshall nd 13 clack presented the marginal Productivity Theo) oe oei en, 409 NATIONAL INCOME Q.1; Define National income in the words of Prof Marshall? actor ‘Ans: Individuals if @ country produce a certain quantity of goody and services using the resources of the country with the help of their capital. It is called national income. Q.2: Define National income in the words of Prof Pigou? ct in ‘Ans: National income is that Part of material wealth of a nation which can be measured by the scale of money. [Q3:] Define National income in the words of Prof Paul A Samullson? “Amst Itis the loose name we give for the money measure of the over ali annual flow of odity 1 . For goods and services in an economy. jes of © Qa:_Define National income in the words of Prof Ackley Gardener? while ‘Ans: Individual income is the amount of his eaming from the productive services currently rendered. by him or by his property National income is nothing more ginal than the sum of all the individual incomes. Q.5: Define National income in the words of Prof Fisher? ; - ‘Ans: Quantity of goods and services which is consumed during a year is called national income. What are various concepts of ‘notional income? Following are the various concepts of national income (1) Goss National Product (G.N-P). (2) Net National Product (N.N.P). @) Goss Domestic Product (G.D-P). {4) National Income (N.). (5) Personal Income (P.1). (6) Disposable Personal income (D-P.D): ve feu Per Capita Income (P.C.1). 7: ioe Ans: Coe eee Sr cour the wil market value of all final goods and Saree is period of one yeah AIL ABUT) goods,MBAS: Ans: /Q4: Ans: | PRINCIPLES OF ECONOMICS (| COM. PART, ae “of Is, government an goods, mineral goods and services of individuals. id sem government institutions are included in it. Explain meanings of Net National product? Ki If We subtract depreciation allowance or replacement cost of machines from gross national product (G.N.P), we get Net National Product Net national Product=Goss National Products-Depreciation allowance ‘What is meant by Depreciation allowance? We use machines and tools to manufacture goods. These-machines-often-break «-and-tear. We have to repair these machines, reer ee Seine Pe SON geceeaiation evanes The expenditures made on their repair are calle pt Explain the meuaings of Goss Domestic Product? Total market value of all final goods and services Produced within a country during & year is called gross domestic product. Thus when we subtract net foreign income from gross national product, we get gross domestic product. G.D.P = G.N.P- EL xplain the concept of National income? If indirect taxes are subtracted ftom Net National Product (N.N.P) and subsidies fare added in N.N.P, get National income (N.l), {t is the income which is the aggregate of net rewards of four factors of Production e.g, rents + wages + interest + Profits, National Income = Net National Product — indirect taxes + Subsidies, ‘What is Subsidy? Sometimes government wants to provide some goods to the public at a lower Price than market Price, ‘Fhe-government igher price-and sells at-e-tow price to-the public at-utility stores and-Cooperative stores. It means some part of the price of, these goods is paid by the government, it is called Subsidy. For example, if government purchases flour at Rs 10/-per kg and sells it at Rs 8/- per kg, then subsidy will be Rs 2/-per kg. Explain the concept of Personal income? It is the income which @ person individually earns in a year, For example, & lawyer earns 10 lace in a year, it ig his Personal income. Transfer payments and indirect taxes are included in personal income, Explain the concept of Disposable Personal income? The income in the possession of an individual after the payment of direct taxes is called disposable personal income/It is at the disposal of the person and he can spend it according to his own free will, Disposable Personal Income = Personal Income ~ Direct taxes,