# Masters in Economics

Topics: Nash equilibrium, Supply and demand, Game theory Pages: 9 (1000 words) Published: August 28, 2013
No. of Printed Pages : 8

MEC-001

MASTER OF ARTS (Economics)
In
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Term-End Examination June, 2010
MEC-001 : MICRO ECONOMIC ANALYSIS

Time : 3 hours given under each section. SECTION - A

Maximum Marks : 100

Note : Attempt questions from each section as per instructions

Answer any two questions from this section : Present and explain Slutsky's theorem : (a) graphically and (b) mathematically.

2x20=40

A monopolist operates two plants : 1 and 2. The marginal costs of the two plants are given by 360-14x-2x 2 and 310-15x—x 2, with x representing units of output produced in each plant. If the price of this product is given by 396 — 4x2, construct the overall marginal cost and determine profit maximising output in each plant. Explain the basic tenets of Rawl's theory of justice. Define 'Nash equilibrium' and explain with the help of the game 'Prisoner's Dilemma'. Provide an example of a game with multiple Nash equilibria. MEC-001 1 P.T.O.

SECTION - B Attempt any four questions from this section : 5. 4x10=40

With Cobb - Douglas production functions, show that : the output elasticity with respect to each input is constant and it can accommodate all types of returns to scale.

6.

How do you explain the prevalence of high wage rate along with unemployment in an economy, using the efficiency wage model ? Explain with a diagram the basic Williamson model of managerial discretion and show that the expenditure on staff is greater under this model as compared to profit maximization. Consider a two person, two commodity pure exchange economy, with : a R C112' U 2 = -121(1.22'

± C121 q l and a=12 + C122 = C12' Derive the contract curve as an implicit function of q11 and q12. What condition on the coefficients a and p will ensure that the contract curve is a straight line ? q11

MEC-001

2

Illustrate the concept of adverse selection with the example of medical insurance market. If age is used in this market as a signal by the insurance companies; under what condition would it be appropriate ?

In a duopoly situation, the market demand
function is given by P =100 — 0.5 (x), where x is the total quantity produced. The costs of the two producers are given by C l = 10 x / and

C2 = 0 .25 4 . Find the joint profit and output
produced by each firm under collusion. If there is no collusion and each firm acts as a monopolist completely ignoring the other, what would be their individual profits ? Does collusion increase profits ?

MEC-001

3

P.T.O.

SECTION - C Answer all the questions from this section : 2x10=20

11. Write short notes on any two of the following : CES production function Compensation principle and Kaldor-Hicks criteria (c) Independence axiom 12. Differentiate between (any two) : Hicks' and Slutsky's approach to measurement of real income and compensated demand. Joint profit maximising and market sharing cartels (c) Risk pooling and Risk spreading

MEC-001

4

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MEC-001

5

P.T.O.

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