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MEC-001
MASTER OF ARTS(Economics)
Term-End Examination
December, 2009
MEC-001 : MICRO ECONOMIC ANALYSIS
Time : 3 hours
aximum Marks : 100
Note : A ttempt questions from each section as directed.
SECTION - A
Answerany two questions from this section :
x20=40
W hat do you m ean by a social welfare function ?If you assum e that such a function exists, wh atproperties of social optima would be consideredby you ? D iscuss such properties.
How the efficiency wage theory can explain thepresence of unemployment and wagedetermination ?
3.
uppose that there is a pure exchange econo m y
with 2 consumers and 2 goods. The endow m entsare w = (2, 4), w 2 = (4, 3). Consumers are
otherwise identical and they have utility function11
u(x,y) =x3y3.
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Construct an Edgeworth Box for this
economy.
Give a definition of a Pareto OptimalAllocation in this economy. Find all Pareto
optimal allocations and graph them in the
Edgeworth Box.
(c) How would you define a competitive
Equilibrium for this economy. Solve for the
equilibrium and check if the competitive
equilibrium is Pareto Optimal.
4.
monopolist has a cost function of c(y) =y so
that its marginal cost is constant at Re. 1 per unit.
It faces the following demand curve :
L0
or P > 20
D (P) =L 100
or P 20
P
Find the profit maximising output.
If the government could set a price ceiling
on this monopolist to force it to act as acompetitor, whet price should they set ?
What output it will produce in such asituation ?
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SECTION - B
Answer ny four questions from this section :
x12=48
cVt) 5. O
A consum er's utility function from consum ptionin two-period ho rizon is u = C1C20 h. is incom estream is given as y1=1000 and y2 = 648. If them arket rate of interest is 8% per annum , find thevalues for consumption in two periods which
maximises his utility.
6.
ohn's utility function is given as u ( x) =,5 where
x = wealth. His present w ealth is Rs. 40,000. Heearns no o ther incom e. Th ere is 0.5 probab ilitythat he will need a surgery in connection with ahealth problem. In case the surgery is done, itwill cost R s. 20,000. He is thinking of go ing for ahealth insurance presently which costs Rs. 10,000.
Find his expected w ealth w ith and withoutinsurance.
Show how m uch he would be willing to payfor buy ing the insurance.
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7.
wo players first simu ltaneou sly dec lare Yes or
No . If any o f the players declares No , then eachplayer gets 80. If bo th players declare Yes, then
they play the following game :2nd Player
1st Player
Invest ConsumeInvest 100, 100 0, 60
Consume 60, 0 60, 60
Find all the subgame-perfect equilibria of the
entire game involving pure strategies only.Suppose tha t consum er's preferences are given bythe u tility function
1
u( x1 , x 2 ) = xf + x 12 )P -Find its indirect utility function and expenditurefunction.
W hat is the theory of Second Best ?Prove the theorem w ith the help of a diagram .
10. et the optimal incentive plan be given ass x)=wx+k where
s(x) = incentive schemex= output, w= w age andk = constant
A worker can producex units of output at a cost
of C x) = x 2 and he can achieve a utility level
of II =0 working elsewh ere. W hat is the optimal
wage-labour incentive scheme s(x) 1 for thisworker ?
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SECTION - C
Answerall the questions from this section :
x6=12
11. W rite short notes onany two of the following :
Production possibility frontier.
Second welfare theorem.
c) Third degree price discrimination.
12. Differentiate between(any two) :
Hom ogenous and h om othetic productionfunctions.
Basing point price and limit price.
c) Pooling and separating equilibria.
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71.1M-001
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h-111 (endowments) t
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1u(x,y) =x3y3.
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(a) TT 3i
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Tg (5-8
kI
x12=48
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7 .
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TIM t -0 $' 31 2TTq ). fi g r i i I T 2 T t I f81-11-14 1# for1151-te q-Y ff-d it th Gois l-8 0 5 1-R T t
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u(x i , x 2 ) =(x 113 +4 )P
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ft i
NI t? 511=11
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M
(Theorem) fiTZ WltA I
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10. 3-Ta d -d 4- F-4-t-w 3371)77 (Optimal incentive plan)
s(x)=wx+k k vfT
s(x)= )7T .21)79T (Incentive scheme)
x= do-Ifq-r (Output)
w = TR
Wage)
k= -Mi ch (Constant) C(x) = 2
d TR 604141
dc4ir q d ch . 11 4 4
=0
3'- 4I -cR 511Hcht t-Ichdlt I
h14-PIR(Worker)*
fri3T-ft7m4 Tr q t
zrr
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u s -'T
4s A 74 -5R- q d-cit
x6=12
11. Pii-ircifi g o -4 A fw
tiT NIF 1)e -0-74
dc-ki
56-F-RTT (Production possibility
frontier) I
fg617
-51-474 (Theorem) I
(c) th RT degree) 1 11-a. f44-q12. -ti-ircifig d -4 A -ft -71'
w dp-z1 :
' mll 74 Mdo-H1 t - F9 (Homogenous
and homothetic production functions).3TmiTio f
;c:f SIT 1-1,1-U Basingpoint price and limit price).
(c) 2.1-qz577
Pooling and
separating equilibrium).
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