1. (a) what are the basic problems of an economic system? Explain how these basic problems are solved in a free market economy.
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(b) Explain the method of measurement of price elasticity of demand at a point on the demand curve. Mention the importance of price elasticity of demand in business decision-making.
2. (a) Explain isoquants with diagram. Why is marginal rate of technical substitution between factors (MRTSLK) always diminishing?
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(b) Draw and give reasons for the U-shape of long-run average cost curve (LAC). Explain the modern view that LAC is L-shaped rather than U-shaped.
3. (a) Explain and evaluate Baumol’s hypothesis of Sales Revenue Maximisation as an objective of modern business firms.
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(b) Mention the main features of oligopoly. Explain how a cartel determines price and output under collusive oligopoly.
4. (a) Explain the Marginal Productivity Theory of factor pricing. What are its main shortcomings?
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(b) Discuss the modern theory of rent. How is it an improvement over Ricardian theory of rent?
5. (a) Explain Keynesian theory of interest. Mention some of the criticisms made against this theory.
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(b) Distinguish between risk and uncertainty and explain the uncertainty bearing theory of profit.