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Chapter: Applications of Derivatives· Mathematics & Statistics (Commerce) Part 1

The consumption expenditure \(E_c\) of a person with income \(x\), is given by \(E_c = 0.0006x^2 + 0.003x\). Find average propensity to consume (APC), marginal propensity to consume (MPC) when his income is ₹ 200. Also find his marginal propensity to…

Q.3 (B)(ii) The consumption expenditure \(E_c\) of a person with income \(x\), is given by \(E_c = 0.0006x^2 + 0.003x\). Find average propensity to consume (APC), marginal propensity to consume (MPC) when his income is ₹ 200. Also find his marginal propensity to save (MPS).

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Answer: APC = 0.123, MPC = 0.243, MPS = 0.757

APC \(= \dfrac{E_c}{x} = 0.0006x + 0.003\). At \(x = 200\): APC \(= 0.12 + 0.003 = 0.123\).

MPC \(= \dfrac{dE_c}{dx} = 0.0012x + 0.003\). At \(x = 200\): MPC \(= 0.24 + 0.003 = 0.243\).

Since MPC + MPS = 1, MPS \(= 1 - 0.243 = 0.757\).

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