MEC-001

MASTER OF ARTS (Economics)

Term-End Examination December, 2009 MEC-001 : MICRO ECONOMIC ANALYSIS
Time : 3 hours Maximum Marks : 100

Note : Attempt questions from each section as directed.

SECTION - A

Answer any two questions from this section : 2x20=40 What do you mean by a social welfare function ? If you assume that such a function exists, what properties of social optima would be considered by you ? Discuss such properties. How the efficiency wage theory can explain the presence of unemployment and wage determination ?
3.

Suppose that there is a pure exchange economy with 2 consumers and 2 goods. The endowments are w 1 = (2, 4), w 2 = (4, 3). Consumers are otherwise identical and they have utility function 11
u(x,y)

=x3y3.
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Construct an Edgeworth Box for this economy. Give a definition of a Pareto Optimal Allocation 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.

A 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 : for P > 20 L0 D (P) = L 100 for 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 a competitor, whet price should they set ? What output it will produce in such a situation ?

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SECTION - B

Answer any four questions from this section : cV

cV O

4x12=48

t) 5.

A consumer's utility function from consumption in two-period horizon is u = C1C20 h. His income stream is given as y1 =1000 and y2 = 648. If the market rate of interest is 8% per annum, find the values for consumption in two periods which maximises his utility.

6.

John's utility function is given as u ( x) =,5 where

x = wealth. His present wealth is Rs. 40,000. He

earns no other income. There is 0.5 probability that he will need a surgery in connection with a health problem. In case the surgery is done, it will cost Rs. 20,000. He is thinking of going for a health insurance presently which costs Rs. 10,000. Find his expected wealth with and without insurance. Show how much he would be willing to pay for buying the insurance.

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7.

Two players first simultaneously declare Yes or No. If any of the players declares No, then each player gets 80. If both players declare Yes, then they play the following game :
2nd Player Invest Consume Invest 100, 100 60, 0 Consume 0, 60 60, 60

1st Player

Find all the subgame-perfect equilibria of the entire game involving pure strategies only. Suppose that consumer's preferences are given by the utility function 1 u( x1 , x2 ) =( xf +x12" ) P Find its indirect utility function and expenditure function. What is the theory of Second Best ? Prove the theorem with the help of a diagram.
10.

Let the optimal incentive plan be given as s (x)=wx+k where s(x) = incentive scheme x= output, w= wage and k = constant A worker can produce x units of output at a cost of C(x)
x2 = 2 and

he can achieve a utility level

of II =0 working elsewhere. What is the optimal wage-labour incentive scheme s(x) 1 for this worker ?
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SECTION - C

Answer all the questions from this section :

11. Write short notes on any two of the following :

2x6=12

Production possibility frontier. Second welfare theorem. (c) Third degree price discrimination.
12. Differentiate between (any two) :

Homogenous and homothetic production functions. Basing point price and limit price. (c) Pooling and separating equilibria.
-o0 -

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71.1M-001 (
1111-4-IT

fq7:11tIT, 2009 71:14*.-001 : 134-7 3T+41TW

Tir RT : 3
*2- :

rlaui
3TAIWffq 3W : 100

bl ue
17-c? f

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drip

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fi1 1111-.1 .4)
4101

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art : 31itt mfr s ?

2x20=40

aTrcr
Ach

t 3-171t 5,1t1

3TWFUT (social optima) -4. 14)1 fadr-draff -97 fd7

fcb q i AN , 11? t:ft ?TM-Era-rat trcii W-44 I

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fart
I

tl,r p i i U 74 -1T-4r t?

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rcbki Nct)R cemseu

3.

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zEri.firr4 I qqaff.

c fad

iaf -14-N 3TO otI cit-9-1T t

7171 = ( 2, 4), w2 = (4, 3)

ch-111 (endowments) t

373-NT 3TP:1 2TT7WIAt ath 31

'-ft.1

tq c-i

+MI

90-ft :

u(x,y) =x3y3.
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(a) TT 3i

tfri.

a 2.i

0:111.4.174 I

ronitr ti 3*-&ffR-Tf4titt3T-ifdT374z-i4
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t I -W*1

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Tg (5-8 14 Lbo-rt u= C1C2 6.

-3791

-kI
ir

4x12=48
3z ATE A dLig)fildir

3-I ch1311-zi 3E47 (income stream)

y1= 1000 2,11. y2 =648

t I q rq .11,1R ci1 ,4
14 3R--

7 8

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u (x)

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---cdr 1 0.5 ITPITIT t

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W{T4

911T-dti cnt

3S1c1 (willing) i)+11?

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7.

-q). fig ri i 81-11-14

TIT2T TIM t10 4 $' 31 2TT .1# for1151 -te q-Yff-di t th

t

t I -f
rGois`l-

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t:
VRT `t5 x1151 114141

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1 '11 41

100, 100 60, 0

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i F-1 4-11C1fig t1 3 LN1PR11

glt1 3791-rr

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u(xi , x2 ) =(x 113 +4 )P z:rk 3T5r-RT d Li glrIcif 1 -)(1-1 QTr ogq Lho-r ld -1-r-q-71

9.

tftzi
M q

(=NI t? - 511=11

t-111CII*

(Theorem) fiTZ "WltA I 10

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10.

3-Ta d-d 4-F -4-t-w 3371)77 (Optimal incentive plan) s(x)=wx+k kvfT
t

s(x)=")7T .21)79T (Incentive scheme) x= do-Ifq-r (Output) w = TR (Wage)

x

k= -Mi ch (Constant)
dc4irqd ch .! 3'- 4I t-cR 511H cht t-I chdlt I

C(x) = 2

id TR 604141
11144

x u=0

ch14-PIR (Worker)* qzrr ?

fri3T-ft7m4 Trqt

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u s -'T
4s A 74 -5R-q d-cit :
rtiT #N IF '1)e-

2x6=12
f-0-74

11. Pii-ircifig o -4 A fw dc-k i frontier) I

-56-F-RTT (Production possibility

fg6171- -51-474 (Theorem)

(c) IthRT

(degree) 1.11-a. f44-q

12. r-ti-ircifig d -4 A -ft.-71'

'mill 74 -T*2M do-H 1 th -F9

-wdp-z1 :

(Homogenous (Basing

and homothetic production functions).

3TmiTio f d ;c:f SIT
- -1,1-U

point price and limit price). (c) 32.1-qz577 separating equilibrium). -o0o(Pooling and

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