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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.

- o 0

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71.1M-001

( 1111-4-IT

fq7 :11tIT, 2009

7 :14*.-001 : 134-7 3T 41TW rlaui

TirRT : 3 blue

TAIW ffq 3 W : 100

*2 :

7 c? 4 PICTql1V1H7T4

rip

tgus-3T

g c f

R-t.

rt :

x20=40

fi111 1 1-.1 4 )

1itt m fr

Tr c r

4101 t

-171t 5,1t1

ch

3TWFUT (social optima) 4 14)1 fadr-draff97 fd7

fcbq i AN , 11? t ft ? T M -Er a - r a t

rcii W-44 I

Tr - A - 7 1 -fart tl,rp i i U 74- 1 T- 4 -

aI T I - T u r

rcbki Nct)R cemseu

t?

3.

rFr

Eri.firr4 I q qaff fad

iaf-14-N 3TOotIcit-9 T t

7 1 71 = ( 2, 4), w 2 = ( 4, 3)

h-111 (endowments) t

373-NT 3TP:1 TT7WA ath 31 -ft q c i

M I

90-ft :

1u(x,y) =x3y3.

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(a) TT 3i

fri.

i : 111 . 4 . 1 7 4 Iti 3*-&ffR-Tf4titt3T-ifdT374z-i4 onitrtr

-44 I Trill

1-r-4-zt

at 6 T - d2f cil of\ I ff*7 ct) ITR 3i2f-a q 9 - f d Tc r e f firoTifsrff wN? fl -q 11

t

ft c

F-791 -1-qc11 Lik 31 1c 44 t?

4.

TIN--*RrolT4,4

(y) = y 1 1 c 4-101 t fATR4

7 1 1: T 1 14 11 7 r f f T. TIT I -W* 1Lhril t I-0

or P > 20

D P) =100 for P 5 20P

alftr*71:1

n c4

qu i l l Tr A

e lf wchR if4-*-Rrocr -c5 4

I F 4

(,4 14 ce ia6R rntl

-0-zr

1-firwaTr

f91Tifti

t 74 rch q RT7 R wl-rrff

f 9 - 4 1 - FT u

q f r - 6 - 4 1 . ?

P-Tru

,4 f - * - - - d - 1 - r

d0-11q1 ft

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Tg (5-8

kI

x12=48

1 4

3791 r

z A TEA dLig)fildir

Lbo-rt u= C1C2 6. -Ich1311-zi 3E47 (income stream)

y1= 1000 1 1.y2=648 I rq .11,1Rci1 ,4 7 8 5ifota Tiftt tt

4 3R- - 4441c11

aTfirw-dg c

K z- c

r i t l -TT

Id WIF- 4 I

3i-141{1mi Fi

chR iq trr VTT t :

u (x)

er x =1: - rcr r u I TI PT17

T. 40,000 t I

q 3T-21 f* Tft 31* R

T 1 7 1

- - - c d r 10.5 ITP ITIT t

1 7 - 2 2 : 11 :1 7 7 1 T - k 7 ilz A T

zi4 1:0# 4)(14

7 47w-di 141 I of r-4# wut

k ii1 0,000 T.

1,1c1 WWI TT k.11lei

o f

tzu-tzr

cAt i t t

1r4

f4F 4 ri ici T. 10,000t I

a 1 + - 1 iTri0 a 21 T014- I f

w4 31-4N-Tu

tf A-4

W{T4

11T -d t i cn t

3S1c1(willing) i 11?

MEC 001

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7 .

S.

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

rq

i5o141-

t:

VRT `t5 x1151

TTifFr14141

100, 100 0,60 11 41TrTffTR50151

60, 0 60, 60

111 , 1-N71Z rclq wT - riTriT 1# 4 r d q ) 1 1 1 d 171Id 0Aglt1 3791-rrI-IF -14-11C1fig t1 LN1PR113Trwrra- 1

u(x i , x 2 ) =(x 113 +4 )P

z:rk 3T5r-RT dLiglrIcif 1 - ) ( 1 - 1 T r ogq L ho-r d - 1 - r - q - 7 19 .

ft i

NI t? 511=11

-111CII*

M

(Theorem) fiTZ WltA I

MEC-001

0


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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).

- o 0 o -

MEC-001

2

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