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of Printed Pages : 12

MEC-001

MASTER OF ARTS

(Economics)

Term-End Examination

June, 2011

MEC-001 : MICRO ECONOMIC ANALYSIS

Maximum Marks : 100

Time : 3 hours

SECTION - A

Answer any two questions from this section. 2)(20=40

1. (a) Why would you consider Pareto efficiency

conditions in multimarket equilibrium of an

economy ?

(b) Suppose that a pure exchange economy

consists of two consumers A and B and two

commodities 1 and 2. The endowments of

2

two goods are (0A = ((DA 10, (DA 10) and

N00

\

(1) B = 0113'---8, -B =4 )

CD

( p, 0.05

2 0.05

Up -n x

( xA

1

and

\ 0.25 .75

( 2 )0

xB

UB= XB )

model.

MEC-001

P.T.O.

2.

with firm-1 as the leader. The market demand of

their product is given as P = 30 Q with

Q = Ql + Q2 and marginal cost (MC) = 12. Find

the stackelberg solution of the model. How does

the solution compare with cournot model ?

3.

differentiate between the problems of

adverse selection and moral hazard.

(b) An employer plans to hire a worker for

producing an output and would like to sign

a contract with him. The value of the output

)

Where e = effort exerted by the worker ;

E = chance

factor.

Further, it is known that e =1 when worker

does the work and e = 0 when he shirks with

shirking (e = 0), the value of output

produced would be 100 with probability

1

3

hand, when he exerts efforts (e = 1), the

value of output produced would be 100 with

3

probability

4 and 60 with probability 41 .

Assume that the employer is risk-neutral

and chooses to maximize his expected

MEC-001

utility function is u = f , where

x = earning, i.,e, wage less of cost of efforts.

The cost of effort is given to be 10 when e 1

and 0 when e = 0. Let there be a negotiation

proposal that has provision to Pay w =SO if

y =100; and w = 70 if y = 60.

(i) If the employer plans to pay fixedwage, i.e, w is independent of y, what

level of effort will the worker choose

if he agrees to sign the contract ?

Which fixed-wage contract will the

employer choose ?

(ii) If the employer proposes to pay all

output to the worker, i.,e, w = y, will

the worker still shirk ? Will the

contract acceptable to the worker ?

Explain.

(iii) Comment on incentive compatible

constraint and participation constraint

of (a) and (b) above.

4.

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 the private good should

be produced.

MEC-001

P.T.O.

SECTION - B

Answer any five questions from this section. 5x12=60

5.

u (y)

8, she will receive Rs. 400. Otherwise she receives

Rs. 100.

(a)

(b)

(c)

before the dice is rolled so that she gives up

the prize ?

(d)

alternative prize of Rs. 169 without the

conditions of rolling the dice. Will she

accept this alternative ? Give reasons in

support of your answer.

MEC-001

6.

and player-2

3

Il

(a)

(b)

of this game.

7.

His utility function is given as U=C t Cr The

income stream flowing to him during the

period 1 and period 2 is yi 800 and ii/2 =, 648. If

the market rate of interest is 8% per period,

determine his optimal consumption values in the

absence of permanent savings.

MEC-001

P.T.O.

8.

y are two goods and' p. and py denote their prices.

If M is the income of the consumer, derive the

expenditure function.

9.

profit of at least 334. Her demand and cost

functions are p =100 4q and c = 50 + 20q.

Determine her output level and price in the

ecluilibrium. Contrast these values with those that

would be achieved under profit maximising

objective.

10.

Max N

ey

(13) Pi

yin= a 7(p)

a Pi

11.

C =0.03 q3 0.6q2 + 10 q +6. Find its short run

supply function.

12.

(a) Public goods and merit goods

(b) Cobb-Douglas and CES production

functions

(c) Slutsky and Hicksian approaches to effect

of price change.

MEC-001

TT:7. (3T1T W )

fll(ci TAVT

'TT, 2011

71:14*-001 : 7W:Ir al*Mq. ftqAtrur

3TiWc171W :100

?7TR7 : 3 tro"E'

7Ye'

'ITPT

2x 20 = 40

1.

(a)

ftTfr 3-Pt5T-qT-24-r

TR-TRT -vA

(b)

3-Trci

fi-cTrT .471)'

?

'Nf:14-14 3-1.2.-11

t3741TTIA3tBatt -4-91141{

- 2t1

-Tpt

)A =

fif%Pif :

H2 = 4)ik 31-14 1 r

/3 = 8,

\ 0.05

UA

I 2 \ 0.05

xA )

xA )

025

U8.-=( x113 )

2 075

( X13)

MEC-001

-11z- , I

P.T.O.

2.

1TF

fwtt 3tit t

4 (41s

3frT 2 t

t-

,16

GUAR 1:67 t

(--11-11Nri ql1c1 '4f77

TfRiqrff

3.

5t-i

t 774 t# qc-v11 t?

14 Tff-d-fa. r.4-f 31171-d- -w

Ticrcz

dc41q-1

(b)

ch14-1,1R

3-fR

#01;ITE

(-11c11

4Giq

t 3c,-Ilc-I (y) Ff

30: e= ch14-1,1It gltf f u

E = si IRich

31T4,

\IN

WH I

e=1

'3W

cl-)14-14IIt cbIH

-q1(-11 t

1

miNcroi

4

, 3

,HT-{

4

Tffn

AT miNcnot

1:TN,

II

T1T4

dculIq-f

100

f *1011

t

Silt e = 0

= f (e, )

YIRIalcIl

3

4 t 7112T

1

cn 7412-T 60 i1411 I HI-I

4

fm

t 31-17 3474 Ycql

. 1941 .0 - ,-f---lcbc-14-174 chi qTi

ti chp-oiR

t

u= ft

MEC-001

Plcli

a42110

x=

8

TfziM

e= 1 3

0

Acfe=0 4-11-1 I- FTA7ft 11'71720-dr7T?rr-cT t76

317T

T -511--dqT9 34541, NN = 80, "Ifq y =100;

(-111 1c1 10 t

w =70 1f y=60

(i)

o (fixed) (719

F-1411-01

w, y

\31-11 ci-11(11

q-)triT

c=1 1-)tR-1

T-qt)T t

ITT TR1TP-F

rcm t ?

q11 Trt tf

Trr f9.9fRo

1-)kR-114-11

-5711-17 "Midf

3-171

3P-rfq, w=y

349.11 .111 ,4,141 -71 TRni ?

a II ? TuftZ

qzfr 11(R-114-11, ch1--1411(

I

#T17

3Tqnq 34

.q9 -k

4.

tq

c4

trk 7fa-T-wl-q

311

t ttsf t-114,4F-14)

414-)(4, TiThcifff opid

W11771 T'rrr-7

-q711 3-ifw

-frgi-d cr)

mit

MEC-001

P.T.O.

4r

5.

5x12=60

APT

i 3LKI

,-174

-cr.fT4

11-T-4 (roll) -ER filfT m--Tur t -7-fq

3, 4, 6 TIT 8, rilcn t 400 T. #1-44 3-1P42.11

It I

100 T. M-1 -51rftu

zr

(a) Tilif

-114-1* *-1,54.q

(b)

agrr4

(c)

3Trizr0 7-4-qr

k4I14-1 W)-7 I

trtrrr

(d)

MEC-001

Ncqirklo

01-61it?

K41

q-it LIT -0

f-*-7 N-Ir 169 T. t ;61C-Lict) *-II 4-1 -5117 T4

t I qzr1ci7T -ra--*--Fzr -0Tzft-*-R

rnt

? 3Ttrt 3Lit c1IssZ 4'741 -WM*

---1C-A7 I

10

6.

- 2 gm tA

F(5014)-1 at

9T-91-fftrd itrm

65

3

0

(a)

ti *7

TriZ c r T

(b)

7.

f- 7t

5 -1(-1-)1 3-11-6111

TT t I

MEC-001

4 161Fr

3114,

chic'LIF-1 011 dLil-frqcir 4t fq'TriR -q111

f-1 4-11*10

cilAR

t-114C1c-f

64

3-74 yi =800

y, 648 -qt -c9:1T7 q):t

7r ,34qN 8% t, c

'-1Tt ql-d- -4; 339.11q.

I

Tut 4)1f4NiTIT I

11

1 2

Plc11 Lnci-t u=x3 y3 t

FlfA7r ch

8.

x 3Ry

py 79t. -117ff

px

LI1c1-1

dLIAqmw- 3-Trzity

oeecFT

T1f7q

J.

cii4 to

:

TAt71 r41ciT t. I 3-Tlt 4-1741

37 afq--d-gfl-

p=100-4q

& .-TILF4 z.t 1i1c4t4-11-1

-1 oh')

-q-tr71-q

-9-ifq

31"citi

7)-Tfr

10.

Max

(P) Ey

(P)=

t9-47zi 74Ti

71

Wt :

(P) Pi

i=1

.7q11.7"-qkrii4

-Tirf

4,1 Th7f9 t :

,

(11

11.

t-114

(P)

c Pi

TftTT 1141ti

TT

7iff

12.

Ric-) 3-i11cft

tfr

atd7

(a)

-114,Akc=

(b)

ci;14-5'1(-1q TE ft 771

(c)

T7T Trfr-q-cti

rr

71TriVi

5-ffsartri

12

Lbol I

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