# MEC 001 MICROECONOMIC ANALYSIS December 2019 Question Paper

MEC 001 MICROECONOMIC ANALYSIS

December 2019 Question Paper

Time : 3 hours Maximum Marks : 100

Note : Attempt questions from each section as per instructions given.

SECTION A

Answer any two questions from this section.

1. Discuss the Stackelberg model for oligopoly markets. How does it compare with 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 the private goods should be produced.

3. Consider a pure exchange economy with 2 goods (X and Y) and 2 consumers (A and B) having utility functions :

Consumer A : UA = (XA) 2YA

Consumer A is endowed with units (2, 6) of commodities X and Y respectively. Consumer B : UB= XBYB.

Consumer B is endowed with units (4, 2) of X and Y respectively. Compute the market equilibrium price and quantity combinations of the consumer that will result in efficient allocation of resources.

4. What do you understand by a social welfare function ? What properties of social optima would you consider necessary if such a function exists ? Discuss these properties. MEC-001 2

SECTION B

Answer any five questions from this section.

5. Differentiate between any two of the following :

(a) ,Homogenous and Hdmothetic production functions

(b) Pooling and Separating equilibria

(c) Basing point price and Limit price

6. Suppose the consumer's preferences are given by the utility function U(xl, x2) = x ix12 '. The prices are p 1and p2respectively. The income is M. Find the ordinary demand function and indirect utility function.

7. Explain how Shepherd's lemma can be used to derive the production function from the cost function.

8. Take a consumer with a two :period horizon. Her utility function is given as U = c 1c2, where c1is current consumption and c 2is future consumption. Her current income Yl= 10,000 and future income Y2= 5,250. If the rate of interest is known to be 5% per annum, find the optimum consumption expenditures of the consumer.

9. Given the following extensive form game :

(a) Find the subgame perfect Nash equilibrium.

(b) Write its normal form and solve for Nash equilibrium.

(c) Compare the solutions of the game obtained in (a) and (b) above and state which of these offers a better solution.

10. What insight do we gain from the efficiency wage model developed by Shapiro and Stiglitz ? Discuss its important conditions that help solve for equilibrium conditions.

11. Consider the Cobb-Douglas production function : Q = A Ka LO Show that :

(a) The output elasticity with respect to each input is constant.

(b) It can accommodate all types of returns to scale.

12. Write short notes on the following :

(a) Producer's Surplus

(b) Baumol's Alternative Theory of the Firm

(c) Hotelling's Lemma

(d) Second Welfare Theorem