Part — B

 Answer the following questions in one or two sentences

 Question 21. Classify the factors of production. Answer Factors of production are classified as land, labour, capital and organization.

1. Land and Labor — Primary factors

2. Capital and organization — Secondary factors.

 

Question 22. Define labour?

Answer

1. Labour is the active factor of production.

2. In common parlance, labour means manual labour or unskilled work. But in Economics the term 'labour' has a wider meaning.

3. It refers to any work undertaken for securing an income or reward. Such work may be manual or intellectual. For example, the work done by an agricultural worker or a cook or rickshaw puller or a mason is manual.

4. The work of a doctor or teacher or an engineer is intellectual.

5. In short, labour in economics refers to any type of work performed by a labourer for earning an income.

 

Question 23. State the production function.

Answer. Production function is the relationship between inputs of productive services and .outputs of product per unit of time.

 

Question 24. Define Marginal Product of a factor?

Answer. It is the addition or the increment made to the total product when one more unit of the variable input is employed. In other words, it is the ratio of the change in the total product to the change in the units of the input.

It is expressed as MP = ATP/AN

Where MP = Marginal Product ATP = Change in total product AN = Change in units of input It is also expressed as MP = TP [n] —TP [n-1] MP = Marginal product TP [n] = Total product of employing nth unit of a factor. TP [n — 1] = Total product of employing the previous unit of a factor, that is,

[n — 1]th unit of a factor.

 Question 27. What are the reasons for the upward-sloping supply curve? Answer. As the price of the commodity increases the quantum supplied also increases. So the supply curve has a positive slope.

 

Part — C

Answer the following questions in One Paragraph

Question 28. What are the characteristics of land?

Answer

1. Land is a primary factor of production

2. Land is a passive factor of production

3. Land is the free gift of nature

4. Land has no cost of production

5. Land is fixed in supply. It is inelastic in supply

6. Land is permanent

7. Land is immovable

8. Land is heterogeneous as it differs infertility

9. Land has alternative uses

10. Land is subject to Law of Diminishing Returns.

 

Question 29. What are the factors governing elasticity of supply?

Answer

1. Nature of the commodity. The elasticity of supply of durable goods are high but perishables have low elasticity of supply.

2. Cost of production: Under constant or increasing returns the elasticity of supply is greater, under diminishing returns elasticity is less.

3. Technical condition: In large scale production supply cannot be adjusted easily. So elasticity of supply is lesser and vice versa.

4. Time factor: During very short period, supply cannot be adjusted. In short period, variable factors can be changed so elasticity is more and in long period, supply is highly elastic.

 

Question 30. What are the functions of entrepreneurs?

Answer Functions of an Entrepreneur:

• Initiation: An organizer is the initiator of the business, by considering the situation and availability of resources and planning the entire process of business of production.

• Innovation: A successful entrepreneur is always an innovator. He introduces new methods in the production process.

• Coordination: An organizer applies a particular combination of the factor of production to start and run the business or production.

• Control. Direction, and Supervision: An organizer controls so that nothing prevents the organization from achieving its goal. He directs the factors to get better results and supervises for the efficient functioning of all the factors involved in the process of production.

• Risk-taking and uncertainty-bearing: There are risk-taking and uncertainty-bearing obstacles. Risks may be insured but uncertainties cannot be insured. They reduce the profit.

 



Question 32. Bring out the Relationship among Total, Average and Marginal Products.

Answer


Question 33. Illustrate the concept of Producer's Equilibrium.

Answer. Producer equilibrium is the situation where the producer maximizes his output. It is also known as the optimum combination of the factors of production. (Eg.) Maximum output at minimum cost. Producer attains equilibrium where the 'so-cost line is tangent to the Iso-quant.



 

In the figure profit of the firm is maximised at the point of equilibrium. At the point of equilibrium slope of the Iso-cost line = Slope of 'so-product curve At the point E, the firm employs OM units of labour and ON units of capital which is the least cost combination.


 Part – D

Answer the following questions in about a page

Question 35.
Examine the Law of Variable Proportions with the help of a diagram.
Answer:
According to G. Stigler, “As equal increments of one input are added, the inputs of other productive services being held constant, beyond a certain point the resulting increments of the product will decrease (ie) the marginal product will diminish”.
Assumptions:

  1. Only one factor is variable.
  2. All units of the variable factor are homogeneous
  3. The product is measured in physical units.
  4. There is no change in the state of technology and the price of the product.

Stage I:

  1. In the first stage MPL increases upto third labourer and is higher than the average product.
  2. So that total produt is increasing at an increasing rate.

Stage II:

  1. MPL decreases up to sixth unit of labour where MPL curve intersects the x axis.
  2. At fourth unit of labour MPL = APL
  3. After this, MPL curve is lower than the APL. TPL increases at a decreasing rate.

Stage III:

  1. The seventh unit of labour is marked by negative MPL the APL continues to fall but positive.
  2. TPL declines with the employment of more units of labour.

Question 36. List out the properties of Iso-quants with the help of diagrams. Answer lso-quant: "An Iso-quant is a curve showing all possible combinations of inputs physically capable of producing a given level of output" — Ferguson.

Properties of Iso-quant curve: 1. The Iso-quant curve has negative slope:

1. It slopes downwards from left to right indicating that the factors are substitutable.

2. In the diagram combination A refers to more of capital Ks and less of labour L2

3. As the producer moves to B. C and D more labour and less capital are used.



2. Convex to the origin:

1. In production, the capital substituted by

1 unit of labour goes on decreasing. It is called diminishing marginal rate of technical substitution.

2. If the marginal rate of technical substitution diminishes the Iso-quants will be convex to the origin. 3. Constant MRTS (straight line) and increasing MRTS (concave).


3. Non-inter-section of Iso-Quant curves:

1. Point A lie on the Iso-quants 1Q1 and IQ2 2. But the point C shows a higher output and point B shows a lower level of output IQ, 3. If C = A. B = A, then C — B. But C > B which is illogical.

 

4. An upper Iso-quant curve represents a higher level of output:

1. Higher IQ show higher outputs and lower IQ show lower output. 2. The arrow in the figure shows an increase in the output with a right and upward shift of


5. Iso-quant curve does not touch either X axis or 1' axis: No Iso-quant curve touches the X — axis or Y — axis because in IQ(, only capital is used and in IQ, only labour is used.


Question 37. Elucidate the Laws of Returns to Scale. Illustrate. Answer. In the long-run all factors are variable. The laws of returns to scale explain the relationship between output and the scale of inputs in the long-run when all the inputs are increased in the same proportion. Assumptions :

1. All the factors are variable except the organization. 2. There is no change in technology. 3. There is perfect competition in the market 4. Outputs or returns are increased in physical quantities.

Three phases of returns to scale: 1. Increasing returns to scale: If all inputs are increased by one percent output increase by more than one percent.

2. Constant returns to scale: In this case, if all inputs are increased by one percent output increases by one percent. Diagrammatic Illustration:

In the diagram, the movement from point a to point b represents increasing returns to scale. Between these two points, input has doubled but the output was tripled.

The law of constant returns is implied by the movement from point b to point c, between these two points inputs have doubled and output also has doubled.

Decreasing returns to scale are denoted by the movement from the point c to point d since doubling the factors from 4 units to 8 units produce less than the increase in inputs that is by only 33.33%.