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.

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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.

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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.

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7. -14-1-1R rch 37:f1q 7-07

7'rch-g- er 1#14 714 Ur 7721)-rft t ?

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

Vii = 10,000 47 317 J2 =5250 1 grq 7 5% aTritTt -rT1.1)-wrr 1 3411-1-7 cqq

ct) •

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7147. ( 3PIT4T74 )

1111VF

2017

70.111 -001 : 1:1A1 WRZ. aett- f-avErtfr

TRTI : 3 tir4 3TWUTT 31Th- : 100

: 75t. f1t411r/TT 3--dT fM1/

71-attftW9'itZUUFffti: 2x20=40

1. cr Zdfri t Li-)4 : 1 .2.1T TP4 2 I TO 1

3Tf3MTq'Tqf7AT-{ 1=firftP= 30- Q,7-4

Q + Q2 .?-1T Tftrid 7friff MC =12 I 7=1Tral4T9

TI1TRIT9 31tTf- I T91 Tri:NT9 tr

f--*7r -9tR f t ?

2. TrqE21 t 5I i 1N 4)"1 Ater TA TR

fa-4R ci-> Tzi7 fT• Tiffq TfiTtfa• -wr

TI-11=ffa 31-NTT t t Trr4—Af9t tg-121 3-1-Nt

74 fa-t 1-0-1 91 tqr

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3. fawr-{ f-*-t 340arawr t t qTq t I d-1 ,41 37:err-dr 1r =4. )q''

UB=[X13 + 5).1 2 t 3-ft7 3TtfiTW

WA = (6, 2) WelT WB = (2, 6) t I (a) 7740 eliett-f fq7 31E*7T-241 3fltiTW

445( fcaTra. 3tr.-*7 (b) 1-1-t sritz 31rtet fitth-trr zt T c4IcKi

14 afr-Wff

(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

* TpTI*Tur q9r*-{3 31rzr -prra 3rfi-wr9R 7111-rd -4 fa9-irfq-ff

tg5 -

75t tf53ra1dzit : 5x12=60 5. T 3T Tied Tm-{zrrA * -f-4 -tsrur *

41 ,1, ra r f "T" I 6. fg--31atitzr Tfif 3-critwrr *r

u=xix20. 6 13rk 34F:r 3T4T-6- y1 =1000 741y2 = 648 t I 7-611 1, 2 WW1: T41:1Ti 3-TPITTft cqohl plc

grq47R1?f:117T{8% rrisi*t-a).7T-*1-39-tfrr--d-r afq*-d-LI a-41TR' -c 4 31PTP# 4 PR-1*r

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