INDIAN INSTITUTE OF MANAGEMENT KOZHIKODE
Time: 2 hours
1. This is a closed book examination. You are not allowed to refer to books, notes or other material.
2. This examination consists of four questions. All questions are compulsory.
3. All questions carry equal weight.
4. Please be precise in your answers. Use diagrams wherever necessary.
Q1. a. You are an employer seeking to fill a vacant position on an assembly line. Are you more concerned with the average product of labor or the marginal product of labor for the last person hired? If you observe that your average product is just beginning to decline, should you hire any more workers? What does this situation imply about the marginal product of your last worker hired.
b. For each of the following examples, draw a representative isoquant. What can you say about the marginal rate of technical substitution in each case?
i. A firm can hire only full-time employees to produce its output, or it can hire some combination of full-time and part-time employees. For each full-time worker let go, the firm must hire an increasing number of temporary employees to maintain the same level of output.
ii. A firm finds that it can always trade two units of labor for one unit of capital and still keep output constant.
iii. A firm requires exactly two full-time workers to operate each piece of machinery in the factory.
Q2. The market demand and supply for wheat is given below:
|Price (Rs./Kg) |Supply |Demand |
| |(million tons) |(million tons) |
|3.0 |4.0 |6.0 |
|4.5 |4.5 |5.5 |
|6.0 |5.0 |5.0 |
|7.5 |5.5 |4.5 |