Extra Lcc

Questions for our extra class Section A 1. Briefly answer the following questions: Questions (a) – (d) are from the 2010 Prelim paper; (e) & (f) are from the 2008 Prelim Paper; (g) & (h) are from the 2009 prelim paper. (a) On economy A there are two types of labour (say, skilled and unskilled). The economy produces two goods (x and y) which can be produced either by skilled labour or unskilled one. Skilled labour can produce either 400 units of y or 200 units of x (or any linear combination of the two). Unskilled labour can produce either 200 units of y or 400 units of x (or any linear combination of the two). Economy B, on the other hand, has only unskilled labour which can produce either 200 units of y or 200 units of x (or any linear combination of the two). If the countries traded at all, it would necessarily mean that country A should fully specialize in the production of x. True or false, explain. (b) The level of cost at which the short run marginal costs equals the long run marginal cost will be higher than the corresponding short run and long run average costs when there are increasing returns to scale and lower when returns to scale are decreasing. True or false, explain. (c) A unit tax levied on a competitive industry will always cause an increase in the short run equilibrium price which is the same size as the size of the tax. Therefore, the burden of tax is borne by consumers alone. The same is true for the long run. True or false, explain. (d) Competition erodes the monopolistic power of firms in monopolistic compe tition only because it reduces the market share of each such firm. True or false, explain. (e) There exists no optimal solution to the problem of a monopolist facing a demand with constant price elasticity and constant marginal cost. True or false? Explain. (f) In the absence of a proper allocation of property rights, competition may not produce an efficient allocation. True or false? Explain. (g) It is possible for all markets to be...