MEC-101/001 MICROECONOMIC ANALYSIS in English Solved Assignment 2022-2023

MEC-101/001 MICROECONOMIC ANALYSIS in English Solved Assignment 2022-2023

Tutor Marked Assignment (TMA)
Course Code: MEC-001/101
Assignment Code: Asst /TMA /2022-23
Total Marks: 100

Note: Answer all the questions.
SECTION A
Answer the following questions in about 700 words each. The word limits do not apply in
case of numerical questions. Each question carries 20 marks.
2 × 20 = 40
1. a) Consider a pure-exchange economy of two individuals (A and B) and two goods (X
and Y) Individual A is endowed with 5 units of good X and 3 units of good Y, while
individual B with 3 and 4 units of goods X and Y respectively. Assuming utility functions
of individuals A and B to be UA=XA YA
2 and UB=XB
2 YB where Xi and Yi for i= {A, B}
represent individual i’s consumption of good X and Y respectively, what will be the set of
Pareto optimal allocation in this economy?
b) Determine the conditions that need to be fulfilled by an allocation to be termed as
Pareto efficient allocation.
2. Consider a Cobb-Douglas utility function
U (X, Y) = Xα Y (1- α)
,
Where X and y are the two goods that a consumer consumes at per unit prices of Px and
Py respectively. Assuming the income of the consumer to be ₹M, determine:
a. Marshallian demand function for goods X and Y.
b. Indirect utility function for such a consumer.
c. The maximum utility attained by the consumer where α =1/2, Px =₹ 2, Py = ₹ 8 and
M= ₹ 4000.
d. Derive Roy’s identity.
SECTION B
Answer the following questions in about 400 words each. Each question carries 12 marks.
5 X 12=60
3. a.) What is excess capacity and how is it related to the model of monopolistic
competition?
b) Demand function and supply function are given as P=25-X2 and P=2X+1 respectively,
find out producer surplus and consumer surplus.
4. a.) Define games of complete and incomplete information
b.) From the following pay-off matrix, where the payoffs (the negative values) are the
years of possible imprisonment for individuals A and B, determine:
(i) The optimal strategy for each individual.
(ii) Do individuals A and B face a prisoner’s dilemma?
Individual B
Individual A
Confess Don’t Confess
Confess (-5, -5) (-1, -10)
Don’t Confess (-10, -1) (-2, -2)
5. a.) Differentiate between the Cournot and the Bertrand model of Oligopoly.
b.) Consider an industry with two firms 1 and 2, each producing output Q1 and Q2
respectively and facing the industry demand given by P=140-Q, where P is the market
price and Q represents the total industry output, that is Q= Q1 + Q2. Assume that each
faces a marginal cost of ₹ 20 per unit with no fixed costs. Solve for the Cournot
equilibrium in such an industry.
6. a.) Given the Von Neumann-Morgenstern utility function of an individual, U (W) =W ½
,
where W stands for amount of money. Comment upon attitude towards risk of such an
individual with the help of a diagram.
b) Now suppose this individual possesses a building worth ₹1600. If the building catches
fire, its value falls to ₹ 400. Let the probability of building catching fire be ¼. On the
basis of the given information, find out whether the individual would be willing to pay a
risk premium of ₹ 76 to the insurance company in order to eliminate the risk associated
with the factory building.
7. Write short notes on following:
a) Moral Hazard
b) Homogeneous and Homothetic production functions
c) Arrow prat measure of risk averseness
d) Bergson-Samuelson Social welfare function

MEC-001, MEC-01, MEC 001, MEC 01, MEC001, MEC01, MEC-1, MEC1, MEC