No.

of Printed Pages : 6 MEC-001

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.

MEC-001 1 P.T.O.
3. Consider an economy with 2 persons and 2 goods.
The utility functions of the 2 persons are
2
UA =XiA X2 ; UB =(X13 Xil23 + 5) 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 y 1 =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.

MEC-001 2
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.

MEC-001 3