# MEC 101 Solved Assignment 2021-22

**MEC 101**

**MICROECONOMIC
ANALYSIS**

__SECTION A__

**1.** (a) “In terms of the type of good, that is whether a
good is normal or inferior, the relationship between the compensated and the
uncompensated demand curves varies,” Justify the statement graphically.

(8)

(b) A
consumer’s preferences over goods A and B is given by the utility function

U (A, B) = 𝐴 ^{1}/_{2} 𝐵 ^{1}/_{3}

Let pA be
the price of good A, pB the price of good B and let consumer’s income be given
by I.

(i) Derive
the indirect utility function

(6)

(ii) What is
meant by Dual problem in context of the Utility and Expenditure optimisation
exercise?

(6)

**2.** (a) While modelling Insurance
markets in presence of asymmetric information, a Separating equilibrium is often
preferred instead of a Pooling equilibrium.” Justify the statement. Under what
conditions, a separating equilibrium may also not exist.

(6)

(b) Given
the von Neumann-Morgenstern utility function of an individual, U (W) = 𝑙𝑛𝑊 where W stands for amount of money
and ln is the natural logarithm. Comment upon attitude towards risk of such an
individual with the help of a diagram.

(6)

(c) Now,
suppose this individual plays a game of tossing a coin where he wins Rs 2 if
head turns up and nothing if tail turns up.On the basis of the given
information, find (i) The expected value of the game.

(4)

(ii) The
risk premium this person will be willing to pay to avoid the risk associated
with the game.

(4)

__SECTION B__

**3.** (a) Differentiate between the Cournot and the
Stackelberg models of Oligopoly.Under the Stackelberg assumptions, the Cournot
solution is achieved if each firm desires to act as a follower. Do you agree?
Elaborate.

(6)

(b) A
monopolist operates under two plants, 1 and 2. The marginal costs of the two
plantsare given by

MC_{1} = 20 + 2_{q1}
and MC_{2}= 10 + 5q_{2}

where q1 and
q2 represent units of output produced by plant 1 and 2 respectively. If the
price of this product is given by 20 –3(q1 + q2), how much should the firm plan
to produce in each plant, and at what price should it plan to sell the product?

(6)

**4.** (a) Consider there are two firms 1 and 2 serving an
entire market for a commodity. They have constant average costs of Rs 20 per
unit. The firms can choose either a high price (Rs 100) or a low price (Rs 50)
for their output.When both firms set a high price, total demand is1000 units
which is split evenly betweenthe two firms. When both set a low price, total
demand is 1800, which is again split evenly.If one firm sets a low price and
the second a high price, the low-priced firm sells 1500 units, the high-priced
firm only 200 units.0

Analyse the
pricing decisions of the two firms as a non-co-operative game and attempt the
following:

(6)

(i)
Construct the pay-off matrix, where the elements ofeach cell of the matrix are
the two firms’ profits.

(ii) Derive
the equilibrium set of strategies.

(iii)
Explain why this is an example of the Prisoners’ Dilemma game.

(b) What is
the Bayesian Nash equilibrium? How is it different from Perfect Bayesian
equilibrium?

(6)

**5.** What is Kaldor’s compensation principle? How is it
different from Hick's compensation principle?

(12)

**6.** (a) “Homothetic production function includes
Homogeneous production function as a special case.” Justify this statement.

(6)

(b) Consider
a production function: Q = f (L), where Q represents the output and L is the
factor of production. Let w be the per unit price of factor L and p be the per
unit price of output Q. Using the Envelope theorem determine the supply
function and the factor demand function.

(6)

**7.** (a) What are the assumptions on which the First
fundamental theorem of welfare economics rests?

(4)

(b) Consider a pure-exchange economy of two individuals (A
and B) and two goods (X and Y). Individual A is endowed with 1 unit of good X and
none of good Y, while individual B with 1 unit of good Y and none of good X.
Assuming utility function of individual A and B to be

UA = (X_{A}) _{α} (Y)
_{A}^{1−α} and U_{B} = (X_{B}) ^{β} (Y_{B})
^{1−β}

where Xi and
Yi for i = {A, B} represent individual i’s consumption of good X and Y,
respectively, and α, β are constants such that 0 < α, β < 1. Determine
the Walrasian equilibrium price ratio.

(8)

**Master of Arts (Economics)**

**(TMA)(**

**2021-2)**

Dear
Student,’

As explained
in the programme guide for MEC, assignments carry 30 per cent weightage in a
course and it is mandatory that you have to secure at least 40 per cent marks
in assignments to complete a course successfully. Note that you have to submit
the assignments before appearing in Term End Examination of a course.

Before
attempting the assignments please read the instructions provided in the
programme guide sent to you separately. In this booklet we have included the
assignments for all the courses pertaining to the second year. In each course
there is a Tutor Marked Assignment (TMA). You have to do the assignment for
those courses for which you have registered. Do remember that you have to
prepare and submit the assignments separately for each course. Make sure that
you submit the assignments well in time for those courses in which you plan to
appear in the Term End Examination.

**Submission**

For July 2021 session, you need to submit the assignments by March 31, 2022, and for January 2022 session by September 30, 2022 for being eligible to appear in the term- end examination. Assignments should be submitted to the Coordinator of your Study Centre. Obtain a receipt from the Study Centre towards submission.

**For IGNOU Solved Assignment PDF & Hand Written**

**Subscribe**** YOUTUBE :**** ASSIGNMENT SOLUTION**

**WhatsApp Contact : 9289262048**

## Post a Comment