marketing strategies of reliance

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No. of Printed Pages : 12

MASTER OF ARTS

(Economics)

Term-End Examination

June, 2011

MEC-001

MEC

-001 : MICRO ECONOMIC ANALYSIS

Time : 3 hours

aximum Marks : 100

Note : Answer the questions as directed.

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 (0

A

= ((D

A

10, (D

A 1 0 )

and

N-

00

1 ) B

=

01 3 '---8, -

B

=4 )

\

CD

f the utility functions

are :

Up

-n

(

p, 0.05

0.05

x

(

x

A

1

\ 0.25 (

2 )

075

UB= XB )

x

B

Solve for the walrasian equilibrium in this

model.

and

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2.

Let there be two firms (1 and 2) in an industry

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

their product is given as P = 30 Q with

Q = Q

l

+ Q

2

and marginal cost (MC) = 12. Find

the stackelberg solution of the model. How does

the solution compare with cournot model ?

3. (a) In the context of asymmetric information,

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

and 60 with probability 4. On the other

hand, when he exerts efforts e

= 1), the

value of output produced would be 100 with

3

1robability

and 60 with probability 4 .

Assume that the employer is risk-neutral

and chooses to maximize his expected

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profits. The worker is risk-averse and his

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 fixed-

wage, 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.

onsider 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 good should

be produced.

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SECTION - B

Answer

any five

questions from this section. 5x12=60

5.

unanda's utility depends on her income so that

u (y) . She has received a prize that depends

on the roll of a pair of dice. If she rolls a 3, 4, 6 or

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

Rs. 100.

(a) What is the expected pay off of the prize ?

(b) What is her expected utility of the prize ?

(c)

How much would you have to pay Sunanda

before the dice is rolled so that she gives up

the prize ?

(d)

Sunanda is given the option of an

alternative prize of Rs. 169 without the

conditions of rolling the dice. Will she

accept this alternative ? Give reasons in

support of your answer.

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6. onsider the following game played by player1

and player-2

3

l

(a)

How many sub gamesate there in this game ?

(b)

Compute the sub game perfect equilibrium

of this game.

7.

ake a consumer with two period time horizon.

His utility function is given as

U=C

t

Cr The

income stream flowing to him during the

period 1 and period 2 is y

i

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.

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.T.O.


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1

8. Given the utility function u=x

3 y3

, where x and

y are two goods and' p. and py

denote their prices.

If M is the income of the consumer, derive the

expenditure function.

9.

A revenue maximising monopolist requires a

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. Consider a profit function given by

Max

N

=

y

1 3 ) Pi

Use

the envelope

theorem to show that input demand function is

a 7(p)

y i

n=

a Pi

11.

The short run cost function of a firm is given as

C =0.03 q

3

0 .6q

2

+ 10 q +6. Find its short run

supply function.

12.

Differentiate between

any two) :

(a)

Public goods and merit goods

(b)

Cobb-Douglas and CES production

functions

(c)

Slutsky and Hicksian approaches to effect

of price change.

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2.

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(41s

U A R 1 :6 7 t

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Silt

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MEC-001


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(i)

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MEC-001

.T.O.


10/12

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5.

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MEC-001

0


11/12

6.

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MEC-001

1


12/12

1

8.

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3

y

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x 3Ry

x

y

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(P)=

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P)

Pi

i=1

t9-47zi 74Ti 7q11.7

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(P)

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11.

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T

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2

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12.

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(a)

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Lbol

I

(c) T7T Trfr

-

q

cti 1TriVi

rr

5ffsartri

12

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