MEC-001 No. of Printed Pages : 6 MASTER OF ARTS (ECONOMICS) Term-End Examination June, 2017 09621 MEC-001 : MICROECONOMIC ANALYSIS Time 3 hours Maximum Marks 100 Note : Attempt questions from each section as per instructions given under each section. SECTION - A Answer any two questions from this section. 2x20=40 1. Assume there are 2 firms in an industry : Firm 1, and 2. Assume firm 1 is the leader. The market demand for their product is given by P = 30 — Q with Q = Q i + Q 2 and marginal cost MC =12. Find the Stackelberg solution of the model. How is this solution different from Cournot model ? 2. Consider the Pareto efficiency conditions for the provision of a public good. Show that if the sum of the marginal rates of substitution adds up to more than the marginal cost, then more of the public goods and less of private goods should be produced. MEC-001 1 P.T.O.
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MEC-001 No. of Printed Pages : 6
MASTER OF ARTS (ECONOMICS)
Term-End Examination
June, 2017 09621 MEC-001 : MICROECONOMIC ANALYSIS
Time 3 hours Maximum Marks 100
Note : Attempt questions from each section as per instructions given under each section.
SECTION - A
Answer any two questions from this section. 2x20=40
1. Assume there are 2 firms in an industry : Firm 1, and 2. Assume firm 1 is the leader. The market demand for their product is given by P = 30 — Q with Q = Q i + Q2 and marginal cost MC =12. Find the Stackelberg solution of the model. How is this solution different from Cournot model ?
2. Consider the Pareto efficiency conditions for the provision of a public good. Show that if the sum of the marginal rates of substitution adds up to more than the marginal cost, then more of the public goods and less of private goods should be produced.
MEC-001
1 P.T.O.
3. Consider an economy with 2 persons and 2 goods. The utility functions of the 2 persons are
UA =XiA X2 ; UB =(X13 X il23 + 5)2
and the initial
endowments are given to be WA = (6, 2) and WB = (2, 6) (a) Draw Edgeworth Box and show the initial
endowment of the economy. (b) Find the set of Pareto efficient allocations
and show your result on the Edgeworth box. (c) Find the competitive equilibrium of this
economy.
4. A consumer's preference over a single good x and other goods y is represented by a utility function u(x, y) = log x + y. If the price of x = P and that of y = 1 and income M > 1 (a) Derive the Marshallian demand for x and
y. (b) Derive indirect utility function. (c) Use Slutsky equation to decompose the effect
of own price change on the demand for x into an income and substitution effect.
SECTION - B
Answer any five questions from this section. 5x12=60
5. Discuss the approaches adopted by Pareto and Pigou for analysing the problem of welfare economics.
6. A consumer's utility function from consumption in two-period horizon is U = X1X2.6. The income stream is given as y1 =1000 and y2 = 648 (where 1 and 2 stands for 'today' and 'next year' respectively). If the market rate of interest is 8% per annum, find the values for consumption in two periods which maximises his utility.
MEC-001 2
7. Explain how Shephard's Lemma can be used to derive production function from the cost function.
8. Write short notes on (any 3) :
(a) CES production function
(b) Hotelling's Lemma
(c) Merit goods
(d) Consumer's surplus
9. Differentiate between (any two) :
(a) Collusive and non-collusive oligopoly
(b) Monopoly and Monopsony
(c) Adverse selection and Moral Hazard
10. Consider a lottery with 3 possible outcourse 100 will be received with probability 0.1 50 will be received with probability 0.2 10 will be received with probability 0.7.
(a) What is the expected revenue of the lottery ?
(b) What would a risk neutral person pay to play the lottery ?
11. Take a consumer with 2 period horizon. Her utility function is U= x 1x2 and actual income
y1 =10,000 and expected income y 2 = 5250. If the interest rate is known to be 5% per annum, find the optimum consumption expenditure of the consumer.
MEC-001 3
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8. f tc tit 7E1 ru4ruigi :
(a) CES 3e:17
(b) 1744
(c) fatst*T-dTtgrEf
(d) 37:Tit-471 -1 3-1fec
9. f*--ttif
(a) Tiftr*--rft -crq' tWq-*-rt 317-rrP4-*-R
(b) ->)c-IIRITT"{
(c) fa it g-g
10. 11 rile.* 14 d1-1 LIF011 4-1 t I 100 chl Vf17 chi MIRIchll 0.1, 50 *1 0.2 ?-TT 10 ch1 0.7 t I
(a) 31-clfqu YrdMIrt-ci a1II ?
(b) 7r45-14 f1•Wr-41 quell
11. kich 3714' WIT fg--31-q'tzf 4q11 -wrzi 77r t1 3-97flf/T71 -cF77 t U = x 1 x2 7211 •qi 31-17
(c) 31m *1 Tta--e7 7rff 4. z-crttwr t o x31 y al-1-qm z-Rt-
31:RerrdT 1:677 u(x, y) = [log x +y] TeRri NI t I qrq x P, y 1 a21T •TETilwrr 31rzr m>itt (a) x 2,1"f y .WF Trrvf-dl-zi -q-frr f9N-ff-Ta. (b) 31-51-M.V .3-crzerr-dr c cf, (c) x 3icrt tifcqti