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    Question

    X pays Rs. 5 lakhs to a person to transport fake

    currency worth Rs. 50 lakhs. The Police department pays Rs. 5 lakhs to a detective to investigate the crime. The detective’s income is taxed at 10%. If the above transactions happen in the same year and withing the boundary of a country, the contribution of these transactions to GDP (in Rs. lakhs) is 
    A 5.5 Correct Answer Incorrect Answer
    B 5 Correct Answer Incorrect Answer
    C 10 Correct Answer Incorrect Answer
    D 4.5 Correct Answer Incorrect Answer

    Solution

    To determine the profit-maximizing price for a monopolist facing a downward sloping linear market demand curve with zero variable cost, we need to understand how monopolists set prices. 1.      Demand Curve and Revenue : The demand curve for a monopolist is downward sloping, indicating that the price decreases as quantity increases. The monopolist will choose the quantity where marginal revenue (MR) equals marginal cost (MC). In this case, MC is zero. 2.      Marginal Revenue : The MR curve for a linear demand curve lies below the demand curve and has twice the slope of the demand curve. 3.      Profit Maximization : The monopolist maximizes profit where MR = MC. Since MC is zero, the monopolist will produce the quantity where MR = 0. For a linear demand curve, the MR curve intersects the horizontal axis (MR = 0) at the midpoint of the demand curve. This is where the price elasticity of demand is unitary elastic (elasticity = -1). Thus, the profit-maximizing price will be at the point where the demand curve is unitary elastic. The correct answer is: (c) be at the unitary elastic point of the demand curve 4o X pays Rs. 5 lakhs to a person to transport fake currency worth Rs. 50 lakhs. The Police department pays Rs. 5 lakhs to a detective to investigate the crime. The detective’s income is taxed at 10%. If the above transactions happen in the same year and withing the boundary of a country, the contribution of these transactions to GDP (in Rs. lakhs) is (a) 5.5 (b) 5 (c) 10 (d) 4.5 ChatGPT To determine the contribution of the given transactions to GDP, we need to understand what components of these transactions are included in GDP calculations.   Analysis of Transactions: 1.      Transaction 1: Payment for Transporting Fake Currency o    X pays Rs. 5 lakhs to a person to transport fake currency worth Rs. 50 lakhs. o    Illegal activities and transactions in illegal goods are generally not included in the GDP calculation. o    Therefore, this Rs. 5 lakhs payment is not counted in GDP. 2.      Transaction 2: Payment to Detective o    The Police department pays Rs. 5 lakhs to a detective to investigate the crime. o    This payment is for a service provided by the detective and is part of the formal economy. o    The detective’s income from this service is Rs. 5 lakhs, which is counted in GDP. 3.      Taxation on Detective's Income o    The detective’s income is taxed at 10%. o    Taxation itself is not directly included in GDP; however, the service income before tax is included. o    The tax component is part of the government's revenue but doesn't affect the GDP contribution of the detective's service. GDP Contribution Calculation: The only transaction contributing to GDP here is the Rs. 5 lakhs paid to the detective for his services. However, since the detective's income is taxed, the post-tax income is Rs. 4.5 lakhs. But for GDP calculations, we consider the total value of the services provided, not the post-tax income. Therefore, the contribution to GDP is: Contribution to GDP=Value of detective’s services=Rs.5 lakhs

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