1 (a) Why the competitive firm faces a relatively horizontal demand curve.

(c) Should a firm shut down and why if its revenue is R=$ 1, 000.

i.Its variable cost VC=$ 500 and its sunk fixed cost is F= $ 600.

ii.Its variable cost VC=$ 1, 500 and its sunk fixed cost is F= $ 500.

2. Explain the following.

i. Price Consumption Curve ii. Marginal Rate of substitution

iii. Oligopoly iv. Price discrimination

3 (a) If a consumer has to choose between McDonald burger and King Burger, both are perfect substitute to each other. Explain the conditions of consumer's equilibrium with the help of graph.

(b) Suppose that the price of commodity Y is $ 20 per unit while the price of commodity X is $ 15

per unit and suppose that an individual's money income is $ 100 per period and is all spent on X & Y.

i.Draw the budget constraint line for this consumer at the initial point.

ii.If the price of X decreases to $10, incorporate BL2 showing change in the Budget line.

iii.Calculate slope of Budget Line for both cases.

5 (a) Define the characteristic of imperfectly competitive market.

(b) Explain the condition when an imperfectly competitive firm earns an abnormal profit with the help of graph.