GU Business Economics 2019 Solved Question Paper [Gauhati University FYUGP BCom 2nd Sem]

Here we have provided Gauhati University FYUGP NEP BCom 2nd Sem Business Economics 2019 Solved Question Paper. So, read this Business Economics Solved Question Paper 2019 top to bottom it help in your Business Economics 2nd Semester exams.

Gauhati University BCOM 2nd SEM FYUGP

Business Economics Question Paper  2019 

Full Marks: 80
Pass Marks: 24
Time: Three hours

The figures in the margin indicate full marks for the questions.

1. Answer the following questions: (1×10=10)

(a) What is Business Economics?
Answer: Business Economics is the study of how businesses use limited resources to produce goods and services and make profits.

(b) What is Microeconomics?
Answer: Microeconomics is the branch of economics that studies the behavior of individuals and small businesses in making decisions about resources, prices, and production.

(c) What is a Demand Function?
Answer: A demand function is a mathematical relationship that shows how the quantity of a product demanded by consumers changes with factors like price, income, and preferences.

(d) What is Net National Product (NNP)?
Answer: Net National Product (NNP) is the total value of all goods and services produced in a country in a year, after subtracting depreciation (wear and tear of capital goods).

(e) What is an Isoquant?
Answer: An isoquant is a curve that shows different combinations of inputs (like labor and capital) that produce the same level of output.

(f) What is Selling Cost?
Answer: Selling cost refers to the expenses a business incurs to promote and sell its products, such as advertising, packaging, and sales commissions.

(g) What is Demand Forecasting?
Answer: Demand forecasting is the process of estimating the future demand for a product or service based on past trends, market conditions, and consumer behavior.

(h) What is Disposable Income?
Answer: Disposable income is the amount of money a person has left after paying taxes, which can be used for spending or saving.

(i) What is the Marginal Cost of a Product?
Answer: Marginal cost is the additional cost of producing one more unit of a product. It helps businesses decide on production levels and pricing.

(j) What is an Interim Budget?
Answer: An interim budget is a temporary budget presented by the government when a full budget cannot be passed, usually before elections or in emergencies.

2. Answer in brief (within 30 words each): (2×5=10)

(a) Mention two characteristics of Business Economics.
Answer:

1. It applies economic principles to business decision-making.

2. It focuses on solving real-world business problems like cost control and profit maximization.

(b) What is a Production Function?
Answer: A production function shows the relationship between inputs (like labor and capital) and the maximum output that can be produced with those inputs in a given time.

(c) What is Quasi Rent?
Answer: Quasi rent is the temporary extra earnings from a factor of production, like machinery or land, due to short-term demand changes before new supply is available.

(d) Mention two serious problems in the economy of India.
Answer:

1. Unemployment – Many people do not have stable jobs.

2. Inflation – Rising prices make it difficult for people to afford essential goods.

(e) Define Price Elasticity of Demand.
Answer: Price elasticity of demand measures how much the quantity demanded of a product changes when its price changes. It shows if demand is sensitive or insensitive to price changes.

3. Answer any four of the following: (5×4=20)

(a) What are the basic characteristics of Business Economics?
Answer:

1. Microeconomic in Nature – It focuses on individual business units and their decision-making.

2. Practical Approach – It applies economic theories to real business problems.

3. Goal-Oriented – Helps businesses in profit maximization and cost control.

4. Use of Economic Tools – Uses demand analysis, pricing strategies, and cost-benefit analysis.

5. Decision-Making Science – Assists businesses in making efficient decisions regarding production, pricing, and investment.

(b) Discuss the various types of production function.
Answer:

1. Short-Run Production Function – Some inputs are fixed, and output changes with variable inputs (e.g., Law of Variable Proportions).

2. Long-Run Production Function – All inputs are variable, and firms can adjust production scale (e.g., Returns to Scale).

3. Cobb-Douglas Production Function – Shows how output changes with proportional changes in labor and capital.

4. Leontief Production Function – Assumes fixed input proportions without substitution possibilities.

(c) Discuss the main features of Monopolistic Competition.
Answer:

1. Large Number of Sellers – Many firms compete in the market.

2. Product Differentiation – Each firm offers slightly different products.

3. Freedom of Entry and Exit – Firms can enter or leave the market easily.

4. Independent Decision-Making – Each firm sets its own price and output.

5. Selling Costs – Firms spend on advertising and promotions to attract customers.

(d) Explain the factors affecting price elasticity of demand.
Answer:

1. Nature of the Good – Necessities have inelastic demand, while luxuries have elastic demand.

2. Availability of Substitutes – More substitutes make demand more elastic.

3. Proportion of Income Spent – Expensive goods have higher elasticity than cheaper ones.

4. Time Period – Demand is more elastic in the long run as consumers adjust their choices.

5. Addiction and Habits – Addictive goods like cigarettes have inelastic demand.

(e) Explain the concept of cross elasticity of demand.
Answer: Cross elasticity of demand measures how the demand for one good changes when the price of another related good changes. It is positive for substitute goods (e.g., tea and coffee) and negative for complementary goods (e.g., cars and petrol).

(f) Find out the relationship between Marginal Cost (MC) and Average Cost (AC).
Answer:

1. When MC < AC, AC is decreasing.

2. When MC = AC, AC is at its minimum.

3. When MC > AC, AC is increasing.

4. MC always intersects AC at its lowest point in the cost curve.

5. The relationship helps firms determine optimal production levels and pricing decisions.

4. Answer any one of the following: (10 Marks)

4. (a) What is price elasticity of demand? Discuss different kinds of price elasticity of demand. (2+8=10)

Answer:

Price Elasticity of Demand:

Price elasticity of demand measures how much the quantity demanded of a product changes when its price changes. It shows whether consumers are sensitive to price changes or not. It is calculated as:

Price Elasticity of Demand (Ed) = (% Change in Quantity Demanded) / (% Change in Price)

Different Kinds of Price Elasticity of Demand:

1. Perfectly Elastic Demand (Ed = ∞)

   - Even a small change in price leads to an infinite change in quantity demanded.

   - Example: A product in a highly competitive market where substitutes are available.

2. Highly Elastic Demand (Ed > 1)

   - A small change in price causes a large change in demand.

   - Example: Luxury goods like branded clothes and electronics.

3. Unitary Elastic Demand (Ed = 1)

   - The percentage change in quantity demanded is equal to the percentage change in price.

   - Example: Some essential goods where price and demand move proportionally.

4. Inelastic Demand (Ed < 1)

   - A change in price causes a smaller change in demand.

   - Example: Essential goods like salt and medicines.

5. Perfectly Inelastic Demand (Ed = 0)

   - Demand remains the same regardless of price changes.

   - Example: Life-saving drugs or necessities like insulin.

4. (b) What is National Income? Discuss the methods of computing National Income of a country. Mention its difficulties at the time of computing National Income. (2+5+3=10)

Answer:

National Income:

National income is the total value of all goods and services produced in a country within a given period, usually a year. It includes wages, profits, rents, and interest earned by residents. It helps in measuring economic growth and development.

Methods of Computing National Income:

1. Product Method (Output Method)

   - Measures the total value of goods and services produced in an economy.

   - It includes agriculture, industry, and services sectors.

   - Formula: National Income = Total Value of Output - Intermediate Goods

2. Income Method

   - Measures national income by adding all incomes earned by individuals and businesses, including wages, rent, interest, and profits.

   - Formula: National Income = Wages + Rent + Interest + Profit

3. Expenditure Method

   - Measures national income by adding all expenditures made in an economy, such as consumption, investment, government spending, and net exports.

   - Formula: National Income = C + I + G + (X - M)

     Where:

     - C = Consumption expenditure

     - I = Investment expenditure

     - G = Government expenditure

     - (X - M) = Net exports (Exports - Imports)

Difficulties in Computing National Income:

1. Underground Economy: Many transactions in the informal sector, like unreported wages and black-market trade, are not recorded.

2. Non-Monetary Transactions: Household work, barter exchanges, and self-consumed goods are difficult to measure.

3. Double Counting: Some products are counted multiple times, leading to errors in calculations.

4. Data Collection Issues: Inaccurate data from rural areas or small businesses can affect accuracy.

5. Changing Prices (Inflation): Comparing national income over years is difficult due to price level changes.

5. Answer any one of the following: (10 Marks)

Answer:
The Laws of Returns to Scale explain how output changes when all inputs are increased proportionally in the long run. It describes the relationship between input expansion and output growth and is crucial for production decisions.

Types of Returns to Scale:

a) Increasing Returns to Scale (IRS)

• Occurs when output increases more than proportionally to input increases.

• Example: If labor and capital double, output increases by more than double.

• Causes: Specialization, economies of scale, better resource utilization, and technological advancements.

b) Constant Returns to Scale (CRS)

• Occurs when output increases in the same proportion as inputs.

• Example: If inputs double, output also doubles.

• Causes: Balanced growth, optimal use of resources, and no increasing inefficiencies.

c) Decreasing Returns to Scale (DRS)

• Occurs when output increases at a lower rate than input increases.

• Example: If inputs double, output increases by less than double.

• Causes: Inefficiencies, managerial difficulties, lack of coordination, and diseconomies of scale.

Understanding these laws helps businesses optimize their production processes and control costs effectively.

5. (b) Discuss the Modern Approach of Cost. (10 Marks)

Answer:
The modern approach to cost examines how costs behave in different production scenarios, considering real-world business complexities. It differs from the traditional cost approach, which assumed a fixed cost structure.

Key Aspects of the Modern Cost Approach:

a) Short-Run and Long-Run Cost Differences

• In the short run, some costs remain fixed while others vary with output.

• In the long run, all costs become variable, allowing firms to adjust their production scale.

b) L-Shaped Cost Curves

• Unlike traditional U-shaped cost curves, modern theory suggests that the Long-Run Average Cost (LRAC) curve is L-shaped.

• Due to learning effects and efficiency improvements, costs decline and then stabilize rather than rising significantly.

c) Economies and Diseconomies of Scale

• Economies of Scale: Cost savings from large-scale production (e.g., bulk purchasing, advanced machinery).

• Diseconomies of Scale: Increased costs due to management inefficiencies in very large firms.

d) Opportunity Cost and Sunk Costs

• Opportunity Cost: The cost of choosing one alternative over another (e.g., using land for a factory instead of selling it).

• Sunk Costs: Costs that cannot be recovered once incurred (e.g., research and development expenses).

The modern approach provides a more realistic cost structure, helping businesses make informed production and pricing decisions.

6. Answer any one of the following: (10 Marks)

(a) What is Monopoly? Discuss the price and output determination under monopoly market. (2+8=10)

Answer:

A monopoly is a market structure where a single seller controls the entire supply of a product or service, with no close substitutes and significant barriers to entry. This gives the firm complete control over price and output decisions.

Price and Output Determination Under Monopoly:

A monopolist aims to maximize profit by producing at a level where marginal cost (MC) equals marginal revenue (MR). The price and output determination process follows these steps:

a) Demand and Revenue in Monopoly

• The monopolist faces a downward-sloping demand curve, meaning it must lower the price to sell more output.

• Unlike in perfect competition, the price is greater than marginal revenue (P > MR).

b) Profit Maximization Rule

• The monopolist determines the output level where MC = MR to maximize profit.

• The corresponding price is found from the demand curve at that output level.

c) Absence of Supply Curve

• Unlike in competitive markets, a monopoly does not have a well-defined supply curve because price depends on demand conditions.

d) Possibility of Supernormal Profits

• Since there are no competitors, a monopolist can earn supernormal profits in both the short run and long run.

e) Price Discrimination

• A monopolist can charge different prices to different customers based on demand elasticity, known as price discrimination.

In summary, the monopoly market structure allows a single firm to determine its price and output based on demand, cost, and revenue considerations, often leading to higher prices and lower output compared to competitive markets.

(b) What are the characteristics of Perfect Competition? How price and output is determined under perfect competition? (4+6=10)

Answer:

Characteristics of Perfect Competition:

a) Large Number of Buyers and Sellers

• Many firms sell identical products, and no single firm can influence market price.

b) Homogeneous Product

• All firms sell identical goods, making consumer preference irrelevant.

c) Free Entry and Exit

• Firms can enter or leave the market without restrictions, ensuring no long-term profits or losses.

d) Perfect Knowledge

• Buyers and sellers have complete knowledge about prices, quality, and market conditions.

Price and Output Determination Under Perfect Competition:

a) Price Determination

• Since firms are price takers, the price is determined by industry demand and supply forces.

• The equilibrium price is set where market demand equals market supply.

b) Output Determination

• Each firm maximizes profit by producing where marginal cost (MC) equals marginal revenue (MR).

• Since the firm is a price taker, P = MR = AR (Average Revenue).

c) Short-Run Equilibrium

• A firm may earn supernormal profit, normal profit, or losses depending on cost conditions.

d) Long-Run Equilibrium

• Due to free entry and exit, firms earn only normal profit as any supernormal profit attracts new firms, increasing supply and reducing price.

e) Efficiency

• Perfect competition leads to productive efficiency (P = minimum AC) and allocative efficiency (P = MC), ensuring optimal resource allocation.

In perfect competition, market forces determine the price, and firms adjust their output based on cost conditions, making it an ideal but rare market structure.

7. Answer any one of the following: (10 Marks)

7. (a) How does Modern Theory of Rent differ from the Ricardian Theory of Rent? Discuss. (10 Marks)

Answer:

The Ricardian Theory of Rent and the Modern Theory of Rent both explain the concept of economic rent but differ significantly in their approach and applicability.

Ricardian Theory of Rent:

This theory was proposed by David Ricardo and is based on the concept of land rent in agriculture.

a) Definition

• Rent is the surplus earned by land due to its natural fertility and limited supply.

b) Key Assumptions

• Land differs in fertility and productivity.

• Rent arises due to differences in land quality.

• Land supply is fixed and cannot be increased.

c) Explanation

• The most fertile land is cultivated first, and less fertile lands are used only when demand increases.

• Rent emerges as the difference in productivity between the best and marginal lands.

• Marginal land (least productive) earns no rent.

d) Criticism

• It applies only to agriculture, ignoring industrial and urban land rent.

• It assumes land supply is fixed, which is not entirely true.

Modern Theory of Rent:

This theory generalizes rent to all factors of production, not just land. It is based on opportunity cost and economic surplus.

a) Definition

• Rent is the surplus earned by any factor of production due to its scarcity and specific use.

b) Key Assumptions

• Rent is not limited to land but applies to capital, labor, and entrepreneurship.

• It depends on demand and supply conditions in the market.

c) Explanation

• Even labor and capital can earn rent if their supply is inelastic (e.g., highly skilled labor).

• A factor’s rent is determined by its earning capacity in its best alternative use (transfer earnings).

d) Comparison with Ricardian Theory

• Unlike Ricardo’s theory, it is applicable to all sectors, not just agriculture.

• It is based on the concept of economic rent, which arises due to demand conditions.

The modern theory provides a broader and more realistic explanation of rent in both agricultural and non-agricultural sectors.

Or

(b) Critically discuss Schumpeter's Innovations Theory of Profit. (7+3=10 Marks)

Answer: Joseph Schumpeter’s Innovation Theory of Profit suggests that entrepreneurs earn profit by introducing innovations in the production process. According to Schumpeter, economic development occurs through creative destruction, where new innovations replace outdated methods.

Main Features of the Theory (7 Marks)

a) Role of Innovation

• Profit arises from introducing new technology, products, or business processes.

b) Types of Innovations

• New products

• New production methods

• New markets

• New sources of raw materials

• New organizational structures

c) Temporary Nature of Profit

• Once an innovation spreads, competitors adopt it, reducing profit margins.

d) Monopoly Advantage

• Early adopters of innovations enjoy temporary monopoly profits before competition increases.

e) Business Cycle Connection

• Innovations drive economic booms, followed by periods of decline when profits normalize.

Criticism of Schumpeter’s Theory (3 Marks)

a) Overemphasis on Innovation

• The theory ignores other profit factors like risk-taking and market conditions.

b) Not All Firms Innovate

• Many firms earn profits without introducing new innovations.

c) No Explanation for Long-Term Profits

• It does not explain why some firms sustain profits over time despite competition.

Schumpeter’s theory provides a dynamic view of profit but does not fully account for all profit-generating factors in an economy.

-0000-

Must Visit: Gauhati University FYUGP BCom 2nd Sem Main Page