1. State how the ordinal utility approach to consumer behaviour is different from the cardinal utility approach by Marshall. In the context of indifference curve (IC) technique using ordinal utility approach, explain whether following two statements are true. – “IC slopes downwards because if the quantity of one product is reduced, the quantity of other product must also be decreased” and “Slope of indifference curve indicates the rate at which individuals are ready to substitute one commodity by the other”. Substantiate your view on each of the statements separately.
2. With the help of the concept of production function, explain the difference between Law of Variable Proportions and Law of Returns to Scale. Elaborate your answer by citing real world examples.
3. a) Discuss product differentiation as an important feature of Monopolistically Competitive market. Explain the statement “Price flexibility under monopolistic competition depends on the degree of product differentiation”, by referring to the case of any FMCG industry.
3. b) PepsiCo has been a leader in soft drink industry. But over years, it has diversified in various snack foods. Over half of its current profits come from non-soft drink products. What, in your opinion, is the economic principle behind it?