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									B.A. (Hons) Economics-II Year                                            Paper – IV

                        MICRO QUESTION BANK


SHIVAJI COLLEGE
House Examination-2009-10

1.    Answer any three parts. All parts carry equal Marks
      A.   Professor goodheart always give two midterm in his
           microeconomics class. He only use the higher of the two score
           that a student gets on the midterms when he calculates the
           curse grade.
           (a) Nancy learner wants to maximize her grade in this course.
           Lets x1 be her score on the first midterm and x2 be the her
           score on the second midterm. Draw her indifference curve and
           find out Which combination of scores would nancy prefer, x1 =
           20 and x2 = 70 or x1 = 60 and x2 = 60
           (b) Does the nancy have convex preferences over these
           combination.
      B.    Vanna Gogie likes to have large parties. She also have strong
            preferences for having exactly as many men as women at her
            parties. in facts vanna’s preferences among parties can be
            represented by the utility function Ux, y   min 2x  y, 2y  x 
            where x is the number of women and y is the number of the
            men at the party.
            (a) Draw indifference curve along which vanna’s utility is 10.
            (b) Suppose that there is 9 men and 10 woman at Vanna’s
            party. Would Vanna think it was a better party or worse if 5
            more men came to her party.
      C.    Jim’s utility function is Ux, y   xy . Jerry’s utility function is
            Ux, y   1000 xy  2000 .
            Tammy’s utility function is Ux, y   xy 1 - xy  . Marjoe’s utility
            function         is     Ux, y   x y  1000  . Pat’s utility function
             Ux, y   .5xy - 10000 . Billy’s utility function is Ux, y   x/y . F
            Francis’s utility function is Ux, y    xy .
            (a) Who has the same preferences as Jim?
            (b) Who had the same indifference curve as jim?
            (c) Explain why the answers to a and b differ.
      D.    Billy has a von Neumann- Morgenstern utility function U c   c1/2
            If Billy is not injured this season, he will receive an income of 25
            million dollars. If he is injured, his income will be only $10,000.
            The probability that he will be injured is. 1 and the probability



Bliss Point Studies                                                  Ravinder N. Jha
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B.A. (Hons) Economics-II Year                                           Paper – IV

             that he will not be injured is 9. Find out his expected utility (11
             marks)

2.    Dudley’s utility function is U(C  (12  R) 2 , where R is the amount of
      leisure he has per day. He has 16 hours a day to divide between work
      and leisure. He has an income of $20 a day from nonlabour sources.
      The price of consumption goods is $1 per unit.
      (a)    If Dudley can work hours a day as he likes but gets zero wages
             for his labour, how many hours of leisure will he choose?
      (b)    Of If Dudley work can work as many hours a day as he wishes
             for a wage rate of $10 an hour, how many hours he will choose
             to work.
      (c)    If Dudley’s nonlabour income decreased to $5 a day, how many
             hours would he choose to work.

3.    Mr. O.B Kandle will only live for two periods. In periods. In the first
      period s he will earn $50000. In the second period he will retire and
      live on his saving. His utility function is Uc1 c 2   c1 c 2 , where c1 is
      consumption in period 1 and c 2 is consumption in period 2. He can
      borrow and lend at the interest rate = 10.
      (a)    If the interest rate rises, will his consumption increase,
             decrease, or stay the same?
      (b)    Would an increase in the interest rate make him consume more
             or less in the second period?
      (c)    If Mr. Kandle’s income is zero in period 1 and $55000 in period
             2, would an increase in the interest r rate make him consume
             more less, or the same amount in period 1?

4.    A firm has two variable factors and a production function
      f x1, x 2   2x1  4x2
      Draw production isoquants corresponding to an output of 3 and to an
      output of 4.
      (a)    If the price of the output good is 4, the price of factor 1 is 2, and
             the price of factor 2 is 3, find the production maximizing
             amount of factor 1, the Production maximizing amount of factor
             2, and the production maximizing output.
5.    Consider an industry with the following structure. There are 50 firms
      that behave in a competitive manner and have identical cost functions
      given by cy   y 2 /2 . There is one monopolist that has 0 marginal costs.
      The demand curve for the product is given by
      Dp   1000  50p


Bliss Point Studies                                                 Ravinder N. Jha
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B.A. (Hons) Economics-II Year                                         Paper – IV

      (a)   What is th.e supply curve of one of the competitive firms? The
            total supply from the competitive sector at price p is S(p)
      (b)   If the monopolist sets a price p, the amount that it can sell is
            Dm(p) =
      (c)   The monopolist’s production-maximizing output is Ym = What
            is the monopolist’s production-maximizing price?
      (d)   How much output will the competitive sector provide at this
            price? What will be the total amount of output sold in this
            industry?

6.    Suppose that the market demand curve for bean sprouts is given by P
      = 2080-2Q; where P is the price and Q is total industry output.
      Suppose that the industry has two firms, a Stackleberg leader, and a
      follower. Each firm has a constant marginal cost of $80 per unit of
      output. What will be the equilibrium output by the two firms.


HALF-YEARLY EXAMINATION 2010

1.    Answer any three questions. All question is carry marks.
      (a)   How can a black market in food stamps be explained?
      (b)   Do you agree with the following statement
            A student preparing for an examination should not study after
            reaching diminishing returns. Explain.
      (c)   Explain the concept of maximin strategy.
      (d)   If preferences are not convex, is it possible that substitution
            effect is non negative?
      (e)   Explain the difference between increasing returns to scale and
            economies of scale.

2.    (a)   What does an Engel curve for an inferior good look like?
      (b)   Can both goods in a two commodity world be inferior? Explain
      (c)   Given U = min x1 , x 2  , obtain MU xl and depict it graphically as
            function of x 1
      (d)   Given convex preferences, can it be the case that a consumer
            specializes in the consumption of only one of the two goods?

3.    (a)   A self employed plumber is endowed with 168 hours per week
            and no non labor income. Current wage rate is RS 10/- per
            hour.
            (i) Write down and draw his budget equation
            (ii) His optimal choice of work is 40 hours per week. He is
            offered Rs.20/- per hour by an MNC to work for longer hours.



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B.A. (Hons) Economics-II Year                                           Paper – IV

            But he still chooses to work only for 40 hours. Do you think
            that the plumber’s behavior is rational? Explain graphically.
            (iii) What alternative remuneration scheme would you suggest to
            the MNC to induce the plumber to work for longer hours?
            Explain graphically.
      (b)   If leisure is an inferior good, what can you say about the slope
            of labour supply curve? Varian

4.    (a)   John’s utility function (u) for income (I) is given as
            UI   I 2 for I  10
                 I  101/2  100 for I  10
            (i) Draw John’s utility function.
            (ii) He is offered the following choice: Income of zero with a
            chance 0.25 and income of Rs. 14/- with chance 0.75. Or, a
            certain income of Rs.10/. Will he accept this bet? Why?
            (iii) He is offered a choice of income zero with chance 0.25 and
            income Rs 4/- with chance 0.75. Or a certain income of Rs. 3/-.
            Will he accept the bet? Why? What is his certainty equivalent?
      (b)   Is satisfaction of WARP a sufficient condition for an optimizing
            consumer?

5.    (a)   Explain Stackleberg’s model of model duopolistic completion.
      (b)   Let the following be a model of two part tariff under monopoly. If
            there are only two consumers in the market with the following
            demand curves respectively:
            Q1  14  2P1
            Q2  10  2P2
            MC = Rs. 4/- and the firm follows the rule of marginal cost
            pricing.
            (i) If the monopolist is able to keep the two markets separate,
            what rental and usage fee would he charge for each consumer?
            (ii) If a common two part tariff had to be changed, what would
            be the rental and csage fee?
            (iii) Compare the total profits of the firm an both (i) and (ii)
            above.

6.    (a)   In a democratic society why do most political parties tend
            profess moderate ideologies rather than extreme radical
            ideologies? Use the correct game theoretic model to explain your
            answer.




Bliss Point Studies                                                  Ravinder N. Jha
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B.A. (Hons) Economics-II Year                                                   Paper – IV

(b)     You are given the following pay off matrix:
                                 Firm B
                    Enter                    Don’t Enter
        Low Price 3, -1                             3, 1
        Firm A
        High Price 4,5                              6,3
               (i) Does each firm have a dominant strategy? What is it?
               (ii) Why is the entry-deterrent threat by firm A to lower price not
               credible to firm B?
               (iii) What could firm A do to make its threat credible without
               building excess capacity?


SATYAWATI COLLEGE (EVENING)
MID-TERM EXAMINATION 2009-10

1.      Answer any four parts:
(i)     If preferences are quasilinear what will the indifference curve be like?
        Write the equation for such an indifference curve.
(ii)    What does the inverse demand function measure? What will be the
        form of inverse demand function for good 1 in the case of perfect
        complements?
(iii)   If leisure is an inferior good, what can you say about the slope of the
        labour supply curve?
(iv)    A consumer’s endowment is w1 , w 2   4,4  , The prices are p1 , p 2   3,4 
        and the consumer is presently consuming (4, 4). Now the prices
        change to p1 , p 2   3,6  . Could the consumer be better off under these
        new prices?
(v)     A consumer, initially a lender, remains a lender after a decline in
        interest rate. Is he better off or worse off? If he becomes a borrower is
        he better off or worse off?
(vi)    Amita runs a biscuit factory that uses labour, L, and capital, K as
        inputs. If she hires L workers on a given day and K units of capital,
        she can manufacture FL, K   L  K  biscuits. Does this technology
                                               1/2


        imply increasing, decreasing or constant returns to scale?
2.      (a)    Suppose that Amisha and Sanjay have two production plants
               for producing mango juice. They have a total of 850 crates of
               mangoes and the marginal product of mangoes in plant 1 is
               MP1M  1000  M1 and in plant 2 is MP 2 M  1200  2M 2 . What is the
               best assignment of mangoes between the two plants?




Bliss Point Studies                                                         Ravinder N. Jha
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B.A. (Hons) Economics-II Year                                             Paper – IV

      (b)   Many resort hotels remain open in the off season, even though
            they appear to be losing money. Why do they do so?
3.    (a)   The market demand function for wheat is Q d  21  4P , and the
            supply function is Qs  5P  6 , both quantities measured in
            crores of bushels per year. What are the aggregate surplus,
            consumer surplus, and producer surplus at the competitive
            market equilibrium?
      (b)   Clearly bring out the welfare effects of monopoly pricing with the
            help of a diagram.
4.    (a)   Explain the monopoly pricing strategy known as a two-part
            tariff. To maximize its profit using a two-part tariff, a perfectly
            discrimination monopolist needs to set the per-unit charge
            equal to its marginal cost .
      (b)   Atul and Richa play a simple one-stage game where each
            chooses either 1 or 2. If they both choose 1, Atul pays Richa
            Re.1. If they both choose 2, Atul pays Richa Rs.2.If they choose
            different numbers, Richa pays Atul Re.1. Draw a table showing
            the two players’ strategies and payoffs. Are any strategies
            dominant, weakly dominated, or dominated? Indicate each
            players best responses. Is there a Nash equilibrium?
5.    (a)   In each of following cases, calculate the interest earned on bank
            deposit after the specified number of years, given the specified
            initial deposit and the rate of interest – (i) Rs.300 deposited at
            8% interest for 10 years, (ii) Rs. 4000 deposited at 5% for 30
            years.
      (b)   Calculate the present discounted value (PDV) of a 5-year bond
            with an annual coupon payment of Rs.200, and a principle
            payment at maturity of Rs.5000, at an interest rate of 5%.

HOUSE EXAMINATION-2009-10

1.    Attempt any three parts, all carry equal marks:
      (a)   Radhika’s utility function is given by Ux, y   max x,2y 
            (i) Draw Radhila’s indifference curve for U = 4.
            (ii) If price of x is 1, the price of y is 2 and her income is 8, what
            bundle does Radhila choose in this situation?
      (b)   Amit’s preferences are represented by the utility function
            Ux1, x 2   x1  x 2 . The prices of x 1 and x 2 are p1 and p 2 . Derive
            the income offer curve and Engel curve for goods x 1 and x 2 for
            Amit.




Bliss Point Studies                                                   Ravinder N. Jha
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B.A. (Hons) Economics-II Year                                        Paper – IV

      (c)   Firm A’s production function is given by Qa = L1/4 .K3/4 while form
            B’s production function is given by Qb  L  K .
            (i)   Does the law of diminishing MPL hold for these
                  production functions?
            (ii)  Indicate whether these production functions have IRS,
                  DRS, or CRS.
            (iii) Calculate MRTS LK for both the production functions.
      (d)   Using slutsky equation show the effect of wage increase on
            supply of labor when (i) leisure is a normal good (ii) leisure is an
            inferior good.
      (e)   Explain the difference between a strictly dominant strategy and
            an iterated strictly dominant strategy equilibrium.

2.    (a)   Fly- by- night Airlines and Going – going- gone Airways are
            considering whether to switch from their current standard fare
            schedule or implement a frequent – flyer program. The table
            below summarizes the monthly profits in thousands of dollars
            from alternative pricing strategies;
                                            Going- going- Gone
                                            Standard Frequent flyer
                        Standard            (250,275) (210,350)
      Fly- by- night                        (325,190) (200,150)
                        Frequent Flyer
            (i)     If larger payoffs are preferred, does either air corner have
                    a dominant strategy? Explain.
            (ii)    Determine the pure strategy Nash equilibrium for this
                    game.
            (iii)   What is the strategy profile for this game of both air
                    carriers adopt a maximum decision rule?
      (b)   What does it mean to be risk averse and risk loving? Assuming
            that a person is risk show the risk premium and certainty
            equivalent for a risky consumption bundle.

3.    (a)   Rohan has a small garden where he raises carrot and potatoes.
            He consumes some of these vegetables, and sells some in the
            market. His utility function is given by U(C,P) = min. {C, P}.His
            endowment of carrot and potatoes in 30 and 10 respectively and
            the price of each vegetable is Rs. 5.
            (i)     What are Rohan’s net demands?
            (ii)    Suppose now that the price of potatoes rises to Rs. 15
                    from Rs. 5. Calculate the change in demand due to
                    substitution effect, ordinary income effect and endowment
                    effect.


Bliss Point Studies                                               Ravinder N. Jha
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B.A. (Hons) Economics-II Year                                      Paper – IV

      (b)   Show using isoquants and iso-cost lines that SRAC would
            normally be greater than the LRAC. Under what conditions
            would they be same?

4.    (a)   Suppose that the demand equations for the product of two profit
            maximizing firms in a duopoly industry are:
            Q1  50  5P1  2.5P 2
            Q 2  20  2.5P 2  5P1
            The firm’s total cost functions are:
            TC1  25 Q1
            TC 2  50 Q 2
            Suppose that these firms are Bertrand competitors.
            (i)    What is the Bertrand –Nash equilibrium for this game?
            (ii)   If the firm’s cooperate and agree to maximize profits, what
                   is the equilibrium price they will charge?
      (b)   Explain briefly the kinked demand curve model of oligopoly.
            What are its limitations?

5.    (a)   Show using indifference curve analysis that ‘lumsum’ subsidy
            makes the consumer better off compared to an ‘excise’ subsidy
            which costs the government the same amount.
      (b)   A movie monopolist sells to college students and other adults.
            The demand function for students is Qs  800 100P and the
                                                      d


            demand function for other adults is Qa  1600 100P . Marginal
                                                      d


            cost is $2 per ticket. What prices will the monopolist set when
            she can discriminate between the college students and other
            adults? Also calculate the monopolist’s profit at equilibrium.

6.    (a)   Reena loves to consume two goods, grapefruits and almonds.
            The slope of an indifference curve through any point where she
            has a mare grapefruits than almonds is -2 while the slope of an
            indifference curve through any point where she has fewer
            grapefruits than almonds is -1/2.
            (i)     Draw indifference curve for Reena through bundle (10A,
                    10G).
            (ii)    Does Reena have strictly convex preferences? Explain.
            (iii)If price of almonds is Rs. 2, price of grapefruits is Rs. 2
                 and Reena’s income is Rs. 40, determine Reena’s
                 equilibrium.
      (b)   How long run total cost curve is related to the concept of the
            expansion path? Is there any relationship between LRTC and
            SRTC curves? Explain.




Bliss Point Studies                                             Ravinder N. Jha
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B.A. (Hons) Economics-II Year                                         Paper – IV

Sanchi Bhatia Janki Devi Memorial College
Home Examination 2009–10

1.    (i)     What is the present value of $100 one year from now if the
              interest rate is 10%? What is the present value if the interest
              rate is 5%.
      (ii)    Can the long run total cost curve of a firm be a positively sloped
              straight line through the origin? What does it imply? What
              shapes will the long run average cost & long run marginal cost
              take in this case? Can the short run average cost be ‘U’ shaped?
      (iii)   Why taking a monotonic transformation of a utility function
              does not change the marginal rate of substitution?
      (iv)    Can an indifference curve cross itself? Give reason for your
              answer. Why indifference curve is always convex to the origin? If
              good 1 is a ‘neutral”, what is its MRS for good 2?
      (v)     Distinguish b/w returns to scale and economies of scale. Is it
              possible to have constant return to scale & economies of scale
              together?

2.    (i)     If the same person acts as a risk avoider (Purchase fire
              insurance) and also acts as a risk seeker (gambles), can one
              explain such seemingly contradictory behaviour?
      (ii)    Given that the demand for electricity is higher during same
              periods than at other times and that it is non-storable i.e., it
              must be generated when it is needed, how would consumer
              welfare be affected if different prices are charged for the service
              at these different times rather than charging a constant price in
              both periods? Why?

3.    (i)     How resources are allocated under monopoly and monopolistic
              competition market? Explain the short run and long run
              equilibrium under monopoly market?
      (ii)    What is price discrimination. Explain the degrees of price
              discrimination? In what condition monopoly power will be
              higher?

4.    (i)     In a Production process is it possible to have decreasing
              marginal product in an input and yet increasing returns to
              scale? Explain the main Properties of technology? Why marginal
              rate of technical substitution is always diminishes?
      (ii)    Why price and output is indeterminate under oligopoly market?
              Can you explain how output is determinated by Cournot model?




Bliss Point Studies                                                Ravinder N. Jha
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B.A. (Hons) Economics-II Year                                      Paper – IV

5.    (i)    A consumer, who is initially a lender, remains a lender even
             after a decline in interest rates. Is this consumer better off or
             worse off after the change in he better off or worse off? Show
             with the help of a diagram?
      (ii)   How Revealed Preference theory is differ from Indifference Curve
             Analysis? Distinguish b/w Hicksion & Slutsky’s Substitution
             effect.

6.    (i)    For what kind of preferences will the consumer be just as well-
             off facing a quantity tax as an income tax? Show the income
             offer curve & Engel Curve in case of quasilinear preferences &
             Homothetic Preferences.
      (ii)   Under Cournot’s Model market demand curve as p = 20 – q
             where q is the total production of two firms 1 and 2. Determine
             (a) Reaction Curves of the two firms assuming that both firms
             are producing under zero cost of production.
             (b) Equilibrium level of output for both the firms & equilibrium
             market price.

In the place of Q. 4(a), Do the following question:
4.    (a)    Demand for light bulbs can be characterized by Q = 100 – P,
             where Q is in millions of boxes of lights sold and P is the price
             per box. There are two producers of lights, Surya Roshini and
             Osram. They have identical cost functions:
                         1
             Ci  10Qi  Qi2
                         2
             Q  QSR  Q 0
             (i)     If the manager of each firm plays cournot, find the
                     equilibrium values of QSR , Q 0 and P?
             (ii)    Suppose Surya’s manager guesses correctly that Osram is
                     playing Cournot, so he then plays Stackelberg. What are
                     the equilibrium values of QSR , Q 0 and P?
             (iii)   If the managers of the two companies collude, what are
                     the equilibrium values of QSR , Q 0 and P?


Home Examination 2009-10

1.    Attempt any three parts. All parts carry equal marks.
      (a)    Show that if a consumer spends all his income on two goods
             then the weighted average of the income elasticities of demand
             of the two goods in unity.




Bliss Point Studies                                             Ravinder N. Jha
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B.A. (Hons) Economics-II Year                                          Paper – IV

      (b)   A consumer has the utility function given by U = y + log x. What
            can you say about demand for good x when money income
            changes?
      (c)   Why does the minimum point of the AVC curve lie to the left of
            the minimum point of the ATC curve?
      (d)   Why does the minimum point of the AVC curve lie to the left of
            the minimum point of the ATC curve?
      (e)   Suppose MRS between goods x and y increases (in absolute
            value) as good x is substituted for good y. What would the
            tangency between budget line and indifference curve indicate?
            What would be the most preferred consumption choice?

2.    (a)   Consider the pricing of first-classes and coach airline tickets
            on a route where the airlines has a monopoly in air travel.
            Marginal cost is constant at Rs. 100. The demand for first-class
            tickets is P = 1000 – 5Q, while the demand for coach tickets is
            P = 500 – Q.
            (i)    What are the profit-maximizing prices and quantities for
                   first-class tickets and coach tickets?
            (ii)   What is the demand elasticity for each market segment at
                   the profit-maximizing prices you found in part (i)?
      (b)   Suppose there are two types of consumers (in equal numbers)
            but the firm must charge the same price to everyone. The “high
            demand” consumers have the demand curve given by
            QH  130  P and the “low demand” consumers have the demand
            curve Q L  100  P . Marginal cost is constant at Rs. 10. Calculate
            profits for the firm if it sets a two-part tariff with usage fee equal
            to Rs. 10 and rental fee equal to consumer surplus for the “low
            demand” consumers at that price. Then calculate profits if
            usage fee is equal to Rs. 15 and entry fee is equal to consumer
            surplus for the “low demand” consumers at that price. Which
            pricing strategy is more profitable?

3.    (a)   Why is the firm’s demand curve flatter than the total market
            demand curve in monopolistic competition? A monopolistically
            competitive firm earns zero profit in the long run but still it has
            monopoly power. Explain.
      (b)   Using the Rule of Thumb for Pricing, explain how a zero cost
            firm will determine its profit-maximizing price and output. Show
            it using a diagram also.
      (c)   The Best Bakery sells a popular type of sandwich roll. It spends
            4 percent of sales revenue on advertising. It sells its rolls for Rs.
            0.35 when each roll has a marginal cost of Rs. 0.25. If the firm


Bliss Point Studies                                                Ravinder N. Jha
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B.A. (Hons) Economics-II Year                                                Paper – IV

            is maximizing profits, what is its advertising elasticity of
            demand?

4.    (a)   The kinked demand curve model describes price rigidity under
            oligopoly. Explain how it works and what is the limitation of this
            model?
      (b)   The following is the pay-off matrix of two firms A and B in a
            pricing game:
                                                 Firm B
                                    Low Price                    High Price
                   Low Price        2, 2                         5, 1
      Firm A
                   High Price   1, 5                     3, 3
            (i)    Does there exist a dominant strategy for each firm?
            (ii)   Determine the pure strategy Nash equilibrium in this
                   game?
5.    (a)   A consumer’s utility function is given by U(x, y) = min (2x, y).
            Suppose that the price of good x is Rs. 1 per unit, price of good
            y is Rs. 0.75 per unit and income is Rs. 20. How many units of
            x and y will the consumer demand in this situation? Derive the
            demand function for good y.
      (b)   A consumer has an income of Rs. 2000 this year and he expects
            an income of Rs. 1100 next year. He can borrow and lend at an
            interest rate of 10%. Consumption goods cost Rs. 1 per unit this
            year and there is no inflation. He has the utility function
             UC1 , C 2   C1C 2 . Calculate the following :
            (i)    The present value and future value of endowment
            (ii)   Optimal choice of present and future consumption
6.    (a)   State the Weak Axiom Revealed Preference. When prices are
            p1 , p 2   1, 2 a consumer demands x1 , x 2   1, 2 and when prices
            are q1 , q 2   2, 1 the consumer demands y1 , y 2   2, 1 . Does this
            behaviour satisfy WARP?
      (b)   Study the impact on the labour supply when:
            (i)    higher overall wages are offered
            (ii)   higher overtime wages are offered




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B.A. (Hons) Economics-II Year                                       Paper – IV

House Examination
1.    (a)   Give a critique of the colonial monetary policy of the Indian
            Government and discuss it in the context of the Great
            Depression experienced by India.
      (b)   “The guarantee system of financing the Indian railways was
            inherently unjust and inefficient.” Comment.
      (c)   What were the constituents of the “Drain”? Discuss how the
            persistent export surplus maintained by India was necessary for
            the financing of the ‘Drain’.
      (d)   Write short notes on any one : (a) commercialization of
            agriculture in colonial India (b) trends in foreign trade after the
            first world war (c) Rural indebtedness in colonial India

2.    What factors were responsible for the Great Divide in the population
      history of the Indian subcontinent?

3.    Analyze the changes in the composition and direction of foreign trade
      of India especially between 1850 and the First World War.

4.    Would you agree that underneath the overall picture of a stagnant
      occupational structure in colonial India, certain forces of change can
      be observed? Discuss with special reference to the manufacturing
      sector and some states which were exceptions to the general trend.

5.    Discuss the ‘Famine Codes’ and examine how far they were successful
      in combating the horror of famines.

6.    Did the development of Railways become an engine of growth for the
      Indian subcontinent during colonial rule? Discuss.



ST. STEPAHN QUESTION 2009-10
1.    (a)   Show that if the weak preference relationship is transitive, the
            indifference relationship is also transitive. Is the converse true?
      (b)   What is the weak axiom of revealed preference? Use WARP to
            prove that the Slutsky compensated demand curve is downward
            sloping.

2.    (a)   A consumer has the utility U(x, y) = ln x + ln y. For a given y,
            find the offer curve of the consumer as p x and p y vary.

      (b)   Prove that starting from a position of no risk; any risk averse
            individual will buy a positive fraction of a gamble with positive
            expected value.



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B.A. (Hons) Economics-II Year                                     Paper – IV

3.    (a)   Discuss the impact of a decrease in the rate of interest on the
            saving decision and the utility level of an individual.
      (b)   Explain the concepts of risk sharing, hedging and diversification
            in choices involving risky prospects.

4.    (a)   What do you mean by the cost function of a firm? Show that
            profit maximization implies cost minimization. Is the converse
            true?
      (b)   Define the following
            (i) Increasing returns to scale.
            (ii) Convexity, additivity and divisibility axioms in production
            technology
            (iii) Efficiency in production
      (c)   Derive the profit maximization conditions of a monopolist. Show
            that such a firm (with increasing cost function) Will never
            choose a price at which the market demand is inelastic.


LADY SHRI RAM COLLEGE FOR WOMEN QUESTION 2009-10
1.    (a)   When prices are (4, 6), Ram chooses the bundle (6, 6) and when
            prices are (6, 3) he chooses bundle (10, 0). Is this behaviour
            consistent with WARP?
      (b)   Draw and discuss the shape of the budget line if a consumer
            can consume x each month at a subsidy of s per unit upto 100
            units, and then pays the normal price P upto 300 units, but
            thereafter pays a per unit tax t on all consumption beyond 300
            units.
      (c)   Explain the concepts of economies of scale and economies of
            scope with examples.
      (d)   Miss X says that given any two drinks she always prefers the
            one that is sweeter and colder. Is this preference relation
            complete? Is it transitive?
      (e)   A firm is employing 100 hours of labour(L) and 50 bags of
            cement(K) to produce 500 blocks. Labour costs Rs. 40 per hour
            and cement Rs. 120 per bags for the quantities employed
             MPL  3, MPK  2 . Can the firm produce the same output at a
            lower total cost. Explain using a diagram.
2.    Consider the market for a particular good. There are two types of
      customers: those of type I are low demand customers, each with a
      demand function fo the form P  10  Q1 , and those of type 2, who are
      high demand customers, each with a demand function of the form



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B.A. (Hons) Economics-II Year                                             Paper – IV

      P  210  Q 2  . The firm producing the product is a monopolist in this
      market and has a cost function CQ   4Q 2 where Q  Q1  Q 2 .
      (a)   Suppose the firm is unable to prevent the customers from
            selling the good to one another, so that monopolist cannot
            charge different customers different prices. What prices per unit
            will the monopolist charge to maximize its total profit and what
            will be the equilibrium quantities to be supplied to the two
            groups in equilibrium?
      (b)   Suppose the firm realizes that by asking for IDs it can identify
            the types of the customers. It can thus charge different per unit
            prices to the two groups, if it is optimal to do so. Find the profit
            maximizing prices to be charged to the two groups.
      (c)   Do you agree with the assertion that a lump sum tax is superior
            to a quantity tax that gives the same revenue to the
            government?
3.    (a)   A consumer, who is initially a lender, remains a lender even
            after a decline in interest rates. Is this consumer better off or
            worse off after the change in interest rates? If the consumer
            becomes a borrower, after the change is he better off or worse
            off?
      (b)




DAULAT RAM COLLEGE HOUSE EXAMINATION (JAN 2009)

1.    Answer any 4 Parts from the following:
      (a)    U  X1  X 2 , the in difference curve passes through a point
            (9, 12). Find two other points on the same indifference curve.
            What is the slope at point (9, 12).
      (b)   Is the tangency between an indifference curve and budget line a
            necessary and sufficient condition for consumer’s equilibrium?
            Give reasons
      (c)   U  X1  8X 2  X1  X1X 2  X 2 , P1  10, P2  5 and money income is 95.
                             2
                                           2

            Find equilibrium values of X1 and X 2 consumed.
      (d)   Income stream given by a project is as follows – 110 after one
            year, -121 after two years and 66.5 thereafter indefinitely into




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B.A. (Hons) Economics-II Year                                           Paper – IV

            the future. If rate of interest is 10% should the project be
            undertaken.
      (e)   The cost function for a good x is given as C  30  8x  4x 2  x 3 .
            Write down TFC, TVC, AVC, AFC and MC. What will the shut
            down price?
      (f)   Explain how advertising affects the profits of the firm. What is
            the condition for equilibrium amount of advertising and the
            advertising sales ratio?

2.    The government decides to subsidize first 20 units of food and tax the
      remaining amounts consumed, consider a family who is neither better
      off nor worse off with this scheme. Show that the amount of tax it
      pays cannot exceed the amount of subsidy it receives. (Hints : There is
      a net subsidy)

3.    Production function is given by X  L3/4 K1/4 . Does law of diminishing
      marginal productivity hold. If labour increases, will marginal
      productivity of capital increase or decrease. If PL  10 and PK  20 how
      much K & L should be used to maximize profits. Will this proportion
      change if X increase?

4.    The market demand equation is given as P  100  .5Q . There are two
      firm I & II with cost functions C1  5q, C II  .5 Q 2 respectively. Find the
                                                           II
      reaction function of the two diabolists, Their respective output, total
      output and the price.

5.    Given the following model of “Two Part Tariff” under monopoly. Let
      there be two consumers with demand functions Q1  14  2P1 and
      Q2  10  2P2 . Marginal cost = 4. Assume the firms follows the rule of
      marginal cost pricing.
      (a)   If two markets are separate, what rental fee and usage fee would
            the monopolist charge from each group?
      (b)   If one had a common “Two Part Tariff” What would be ‘rental fee’
            and ‘usage fee’?
      (c)   Is it possible to increase profits by charging a different price.

6.    Suppose two computer companies A & B are planning to invest in a
      company. Each from can be develop a High Quantity system or a low
      quality system. The resulting profits to each company are given as
      follows:
                            B
                     High       Low
            High     50, 40     60, 45
      A


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B.A. (Hons) Economics-II Year                                       Paper – IV

            Low      55, 55       15, 20
      (a)   If both times make, their decisions simultaneously & follow the
            “Maximin”
      (b)   In case A gets to move first, then which strategy it will adopt
            what will B do?
      (c)   In case B gets to move first will the outcome change.
      (d)    What should the first mover do so that it can continue to
            remain a leader and earn more profits?



SRI GURU GOBIND SINGH               COLLEGE      OF    COMMERCE         HOME
EXAMINATION 2008-09

1.    Answer any three parts (11 marks)
      (a)   Mrs X likes bread but doesn’t care whether she consumes
            biscuits or not; that is eating biscuit leads to no change in the
            level of happiness. Draw an IDC to represent the above
            preferences.
      (b)   Calculate AVC when AP of Labour is 10 and wages is Rs. 40.
      (c)   A firm has the total cost function C(Y) = 500 + 5Y. What are the
            equations of its AFC, AVC & MC.
      (d)   Why are Iso-cost lines straight lines?

2.    A consumer consumes only two goods x and y. The utility function is
      U  x  y  . What is the relation between the two goods? Does the
                  2


      relation change if U  x  y ? Why?

3.    Assume that a consumer who consumes only two goods & has MRS
      given as MRS  MU A /MU B  B/A . If his money income is PA  Rs 5,
      PB  Rs 10 . What quantities of the two goods will he consume?

4.    (a)   Suppose a firm hires 100 units of both L & K, and its output is
            1000 units and MRTS LK is 2. If the firm hires one more worker
            & wants output to remain at 1000, how many units of k must it
            lay off?
      (b)   A product can be produced using either input Labour or Capital
            & the firms present output position indicates
            MPK  3, PK  Rs 1, MPL  6, PL  Rs 4. Is the firm employing cost-
            minimizing combinations of inputs? If not what should the firm
            do?



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5.    (a)   What is a firm’s Expansion Path? Under what conditions would
            it be a straight line?
      (b)   Explain the backward bending Labour supply Curve in terms of
            Slutsky’s equation.


KAMALA NEHRU COLLEGE

1.    Attempt all the parts.
      (a)   Explain        the        relationship   between   two     goods    if
            U  5/2 * x1  2/5 * x 2?
      (b)   If a consumer views a unit of consumption in period 1 as a
            perfect substitute (one for one) for a unit of consumption in
            period 2 and if the real interest rate is positive, the consumer
            will
            (i)   consume only in period1.
            (ii)  consume only in period 2.
            (iii) consume equal amounts in each period.
      Which of the above option is true? Give reasons
      (c)   How is Rawlsian welfare function different from Benthemite
            welfare function?
      (d)   What is the difference between the long run equilibrium of a
            perfectly competitive firm and that of a monopolistically
            competitive firm?
      (e)   What happens to a firm’s marginal product of labour curve if
            the rental price of capital falls and capital is complementary to
            labour? Also, what happens if capital is a substitute for labour?

2.    (a)   Show the Slutsky decomposition when the consumer buys two
            goods, both good 1 and good 2 are normal, and suddenly stores
            offer “buy one get one free” for good 2.
      (b)   When the government levies a tax on one good, and then
            reimburses the tax revenue in lump-sum to the consumers,
            then nothing happens to the consumed bundle, because the
            consumer is facing the same budget constraint and the same
            preferences. True or False? Explain your answer.
      (c)   Marginal rate of substitution for indifference curves is equal to
            the marginal utility for the corresponding utility function. True
            or false? Explain your answer.
      (d)   What is the present value of a perpetuity that has a coupon of
            Rs. 1500 per year and the yield to maturity is 2.5%? If the yield
            to maturity doubles, what will happen to its price?



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      (d)   What is the present value of a perpetuity that has a coupon of
            Rs. 1500 per year and the yield to maturity is 2.5%? If the yield
            to maturity doubles, what will happen to its price?

3.    (a)   How is production possibilities frontier related to the production
            contract curve?
      (b)   Suppose that A’s production possibility frontier is X 2  Y 2  50
            and representative A’s utility function is UX, Y   X 2/3 Y1/3 . If A
            trades with other countries at fixed world prices PX  PY  1 ,
            what should A produce and consume?
      (c)   Prove “The monopoly allocation is Pareto inefficient”.

4.    (a)   Suppose the production function for widgets is given by
            q  kl  0.8k 2  0.2l 2
      Where q represents the annual quantity of widgets produced, k
      represents annual capital input and l represents annual labor input.
      Suppose k = 10; graph the total and average productivity of labor
      curves. At what level of labor input does this average productivity
      reach a maximum? How many widgets are produced at that point?
      Does the widget production function exhibit constant, increasing or
      decreasing returns to scale?
      (b)   Is agricultural industry perfectly competitive? Use economic
            rationale to explain why or why not?
      (c)   Distinguish between return to scale and economics of scale. Is it
            possible to have constant return to scale and economies of scale
            together?

5.    (a)     Determine whether the consumer with the following choices is
              rational or not:
                        Px     x       Py       y
      (i) State I       1      15      1        5
      (ii) State II     2      12      3        13/3
      (iii) State III   3      9       1.5      14/3
      (b)   Explain how curvature of the expected utility function describes
            the consumer’s attitude towards risk.




SRI VENKATESWARA COLLEGE MID TERM EXAMINATION 2006-07




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B.A. (Hons) Economics-II Year                                      Paper – IV

1.    Vishnu likes strong coffee the stronger the better but he can’t
      distinguish differences smaller than one teaspoon per six cup pot. He
      is offered cup A using 14 teaspoons of coffee (per pot). Cup B using
      14.75 teaspoon and cup C using 15.5 teaspoon. For each of the
      following expressions.
      Determine whether it is true or false
      (a) A ~ B    (b) B  C    (c) C  A
      Is this relation transitive?
      Sita likes chocolates and ice cream but after 10 slices of chocolates,
      she gets tired of chocolates and eating more makes her less happy.
      She always prefers more ice cream to less
      (a)    If however she is made to eat everything put on her plate, what
             will her indifference curves look like?
      (b)    If she is allowed to leave any thing she doesn’t want on her
             plate. What would her indifference curve look like?
      (c)    When price are (4.6). Ram chooses the bundle (6.6) and when
             prices are (6.3) he chooses bundle (10.0). Is his behavior
             consistent with WARP?
      (d)    State whether true or false and explain your answer on the
             basis of YE and SE. If both current and future consumption are
             normal goods, an increase in rate of interest will necessarily
             make a save (i) Save more (ii) Consume more in the second
             period.

2.    S.V.C has Rs. 60000 to spend on computers and other stuff. The
      U.G.C wants to encourage computer literacy in colleges and the
      following two plans were proposed :
      (i)    Plan A gives a grant of Rs. 10000 to each college, that the
             college is free to spend as it wishes.
      (ii)   Plan B is a matching grant. For every rupee spent on
             computers, the U.G.C gives the college Re 0.50.
      (a)    Write the budget equation and draw the budget line in each
             case.
      (b)    If S.V.C. has preferences that can be represented by the utility
             function UC, X   C.X 2 . What will be the amount spent on
             computers under each plan?

3.    Shyam’s demand function for good x is XPs, Py, m  2m/5Px . His
      income is Rs. 1000. Px = Rs. 5 and Py = Rs. 20.
      (a)    If Px falls to Rs. 4, by how much does his demand change?



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      (b)   If his income changes at the same time so that he could exactly
            afford his old commodity bundle. What would his new income
            be? What would be his equilibrium bundle at this new set of
            prices?
      (c)   What is S.E and Y.E?

4.    Ganga has Rs. 50000 to invest in a mutual fund. The expected return
      on mutual fund A is 15% and an mutual fund B is 10%. Should
      Ganga pick mutual fund A or B?

5.    Sukanya is shopping and sees an attractive shirt. However, the price
      of Rs. 800 is more than she is willing to pay. A few weeks later, she
      finds the same shirt on sale for Rs. 400 and buys it. When her friend
      offers Rs. 800 for the shirt she refuses to sell it. Explain Sukanya’s
      behavior.

6.    (a)   Distinguish between third degree price discrimination inter-
            temporal price discrimination and peak load price
      (b)   If Hero Honda has the following demand for its motorbikes :
            P = 20000 – Q.
      The downstream division’s cost of assembling motorbikes is
      Ca(Q) = 8000Q
      The upstream division cost of producing engines is
      Ce(Qe) = 2Qe squared
      If there is not outside market for the engines, how many engines and
      motorbikes should the firm produce? What should be the transfer
      price for engines?



HOUSE EXAMINATION 2008-09

1.    Attempt any three parts, all carry equal marks:
      (a)   Veena consumes two goods, peanut butter and jelly in the ratio
            of 3 units of butter per unit of jelly. She has an income of Rs.
            30. Price of peanut butter is Re. 1 and that of jelly is Rs. 3:
            (i) Draw Veena’s indifference curve for U = 30
            (ii) How many units of peanut butter and jelly will she demand
            in equilibrium?
      (b)   Amit’s preferences are represented by the utility function
             υx1 , x 2   x1x 2 . The prices of x 1 and x 2 are P1 & P2 . Derive the
            income offer curve and price consumption curve for Amit.




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      (c)   Suppose a production function is given by Fk, L   KL2 ; the price
            of K is Rs. 10 and the price of labor Rs. 15. What combination of
            L and K minimizes the cost of producing any given output.
      (d)   Define and distinguish between dominant strategy equilibrium
            and Nash equilibrium.
      (e)   What would happen to a lender’s present year consumption and
            welfare if the rate of interest increases?

2.    (a)   Consider the following simultaneous game :
                                Player 2
                        A                    B
      Player 1   A      ((3, 2)          (0, 0)
                 B      (0, 0)           (2, 3)
            (i) Does there exist a dominant strategy for each player?
            (ii) Determine the pure strategy Nash equilibrium in this game.
            (iii) Find the mixed-strategy Nash equilibrium.
      (b)   Explain graphically the utility function of an individual who is (i)
            Risk-averse (ii) Risk lover (iii) Risk indifferent.

3.    (a)   Goldie’s utility function is U C, R   C  12  R  , where R is the
                                                               2


            amount of leisiou he has per day. He was 16 hours a day to
            divide between work and leisure. He has an income of Rs. 20 a
            day from non-labor sources. The price of consumption goods is
            Re. 1 per unit.
            (i)     If wage rate is Rs. 10/hour, how many hours of leisure
                    and work will he choose?
            (ii)    If Goldie’s non-labor income decreased to Rs. 5 a day,
                    while wage rate remained at Rs. 10, how many hours
                    would he choose to work?
            (iii)   Suppose that Goldie has to pay an income tax of 20% on
                    all of his income, and suppose that his before tax wage
                    remained at Rs. 10 an hour and his before tax non-labour
                    income was Rs. 20 per day. How many hours would he
                    choose to work?
      (b)   Consider the production function Q  4L1/2 K1/2 . Does this function
            exhibit constant returns to scale, increasing returns to scale or
            decreasing returns to scale? Also comment on the shape of long
            run total cost curve for this production function.

4.    (a)   In the last three years, an individual exhibited the following
            consumption behavior:
            2005 P1, P2 , P3   1, 3, 10  and x1 , x 2 , x 3   3, 1, 4 


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B.A. (Hons) Economics-II Year                                                       Paper – IV

            2006 P1, P2 , P3   4, 3, 6  and x1 , x 2 , x 3   2, 5, 3
            2007 P1, P2 , P3   1, 1, 5 and x1 , x 2 , x 3   4, 4, 3

            In this behavior consistent with WARP? What about SARP?
      (b)   Explain peak-load pricing as a form of price discrimination. How
            is it different from third degree price discrimination?

5.    (a)   Consider a duopoly market in which the demand functions for
            each firm is given by:
            Firm 1 : Q1  21  2p 1  p 2
            Firm 2 : Q 2  21  p1  2 p 2
            There are no variable costs for the firms but each incurs a fixed
            cost of Rs. 10.
            (i) Find the Bertrand-Nash equilibrium.
            (ii) If the firm’s cooperate and agree to maximize total profits,
            what is the equilibrium price they will charge?
      (b)   ‘Long run average cost curve is the envelope of the short run
            average cost curves.’ Discuss.

6.    (a)   Nancy has an income of Rs. 2000 this year, and she expects an
            income of Rs. 1000 next year. She can borrow and lend money
            at an interest rate of 10% Consumption goods cost Re 1 per unit
            this year and there is no inflation. Her utility function is
             UC1 , C2  = C1C2
            (i) Find equilibrium levels of C1 and C 2 for Nancy.
            (ii) Now suppose that the rate at which she can lend increases to
            20%, while the rate at which she can borrow remains at 10%.
            Draw Nancy’s new budget line.
      (b)   Discuss the working and limitations of kinked demand curve
            model.


HOME EXAMINATION 2006-07

1.    Answer any four of the following:
      (a)   Price offer curve in case of giffen goods?
      (b)   Slope of the labour supply curve if labour is interior good?
      (c)   Engel curve in case of quasi-linear preferences?
      (d)   Properties of well – behaved preferences
      (e)   Two – part tariff when there are n number of consumes?


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      (f)   Distinction between second degree and third degree price
            discrimination.
      (g)   Prisoner’s Dilemma

2.    (a)   What do you mean by homothetic preferences? Show that Cobb-
            Douglas preferences are homothetic in nature.
      (b)   For what kind of preferences will the consumer be equally
            affected when facing a quantity tax as an income tax?

3.    (a)   Given interest rate of 10 percent, is it worthwhile to invest in a
            project in a project of Rs. 1000, if the return is Rs. 300 in years
            1, 3, 4 and 7? Explain.
      (b)   What kind of preferences are represented by a utility function of
            the  form     ux1 , x 2   x1  x 2 ? Is the utility  function
            vx1, x 2   x1  2x1 x 2  x 2 a monotonic transformation of u x1 , x 2  ?
                           2



4.    (a)   Diminishing returns to a single factor of production and
            constant returns to scale are not inconsistent. Discuss
      (b)   Marginal product of labour in the production is 50 units/hour.
                         1
            The MRTSL.K  . What is the marginal product of capital?
                         4

5.    (a)   Distinguish between economies of scale and economies of scope.
            Why can one be present without the other?
      (b)   Suppose the economy takes a downturn, and that labour costs
            fall by 50 percent and are expected to stay at that level of a long
            time. Show graphically how this change will affect the firm’s
            expansion path.

6.    (a)   Show that outcome of Cournot-Nash equilibrium is much better
            for firms when compared to that of perfect competition, but not
            as good as the outcome from collusion.
      (b)   Suppose that two competing firms A and B, produce a
            homogenous good. Both firms have a marginal cost of Rs. 50.
            Describe what could happen to output and price in each of the
            following situations if firms are at
      (c)   Cournot’s equilibrium, and (ii) collusive equilibrium
            (i) Because firm A must increase wages its MC increases to
            Rs. 80.
            (ii) MC of both firms increase
            (iii) Demand curve shifts to the right




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B.A. (Hons) Economics-II Year                                                Paper – IV


PAPER NO. – 4 MICRO ECONOMICS
1.    Attempt any four
      (a)   A firm’s production function is f x1 , x 2   x1  2x . Comment upon
            the shape of isoquant. Does the production function exhibit
            increasing, decreasing or constant returns to scale?
      (b)   A firm’s production function is given by f x1 , x 2   min x1 , 2x 2  . If
            the firm faces factor price w 1 , w 2  , what is the cheapest cost of
            producing q levels of output?
      (c)   A monopolist always operates on the elastic portion of the
            demand curve. Explain.
      (d)   If the elasticity of demand for the output of a monopolist is 3, in
            equilibrium
      (e)   Define “homothetic preferences” and give examples.
      (f)   An Individual’s utility function for food (x) and clothing (y) is
            given as U(x, y) = xy + 10x, where x denotes the amount of food
            consumed and y the amount of clothing. The price of food is Px,
            the price for clothing is Py, and his income is I.

Answer any three question from 2-6. Each question carries 10 marks.
2.    Consider two firms facing the demand curve P = 1000 – Q
      where Q  Q1  Q 2 . The cost function of each firm is identical and given
      by C1 Q1   4Q1 , where I = Firm1, Firm2. Calculate the outputs, prices,
      profits of each firm under
      (a) Cournot Model
      (b) Stackelberg Model

3.    Two major networks, Star Plus and Zee TV, are competing for viewer
      ratings in 8.00–9.00 p.m and 9.00–10.00 pm slots. Each can choose
      to put its “bigger” show first or place it second. The combination of
      decisions leads to the following “ratings points” results:
                                         Star Plus
                 Strategy            First               Second
      Zee        First               15, 15              30, 10
                 Second              20, 30              18, 18

      (a)   Find Nash Equlibria assuming that both network make their
            decisions at the same time.
      (b)   If Zee TV is risk averse and uses a maximin strategy, what will
            be the resulting equilibrium?



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B.A. (Hons) Economics-II Year                                          Paper – IV

      (c)   What will be the equilibrium if Zee TV makes the selection first?

4.    What do the Cournot and Bertrand models have in common? What is
      different about the two models?

5.    What is the difference between intertemporal Price discrimination and
      third degree price Discrimination? Explain with diagrams.

6.    (a)   Suppose consumer’s preference for hamburgers and coke can
            be represented by the utility function U  H  C , where H
            measures the number of hamburgers and C the number of
            cokes. Does the consumer believe that “more is better” for each
            good?
      (b)   Demonstrate graphically that in the case of a quasi-linear
            preference, the entire change in demand is due to the
            substitution effect.


SHYAM LAL COLLEGE (EVENING): HOUSE EXAMINATION 2006-07
1.    Answer any five parts:
      (a)   A businessman, Mr. X, is considering whether to start a
            business enterprise in an area of the city where commercial
            activities are not allowed. The utility from two possible
            outcomes, the bad outcome (i.e. the authorities come and seal
            his illegal enterprise) and the good outcome (he is able to run
            his business unhindered) is given by a von Neumann-
            Morgenstern utility function. Show that his decision will be
            affected by (i) credibility of the threat, i.e. the probability of his
            business being sealed, and, (ii) the degree of risk aversion of Mr.
            X.
      (b)   A mobile phone functions only when a SIM card is inserted into
            a compatible mobile handset. Depict the utility function of a
            consumer, representing consumption of mobile handsets and
            SIM cards as x and y respectively. Also draw the indifference
            curve representing this utility function.
      (c)   A second year student of B.A (Hon.) Economics is a movie fan
            and watches almost every new release on Fridays. In the
            process, he spends Rs. 300/- of his pocket money every month
            paying for the tickets. Unfortunately for him, the ticket prices
            are hiked, forcing him to reduce the number of movies that he
            could watch in a month. Now he only watches a few select
            movies starring his favorite actresses. But he still ends up
            spending Rs. 325/- every month on tickets. What can you infer
            about his price elasticity of demand for movies?



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      (d)   The utility function is given by U  x  y . Draw the Engel curve
            for good x. Can x be a Giffen good? Explain your answer.
      (e)   If a consumer always spends 25% of her total income on food,
            calculate her income elasticity of demand and the price
            elasticity of demand for food.
      (f)   Distinguish between the concepts of fixed costs and sunk costs
            with the help of an example.
      (g)   Explain why the monotonic transformation of a von Neumann-
            Morgenstern utility function, despite representing the same
            preferences, might not be suitable for analyzing contingent
            consumption. Which property of a von-Neumann utility function
            is lost in a monotonic transformation?
      (h)   “A plant is always run below its optional level in the long run.”
            Is the statement true or false? Answer with reference to two
            separate cases:
            (i)   When there are only economics of scale.
            (j)   When there are both economics and diseconomies of
                  scale.

2.    (a)   State Slutsky equation algebraically and explain each term in
            it. Using the equation answer the following questions:
            (i)    What must be the sign and magnitude of income effect for
                   a download-sloping demand curve?
            (ii)   Show that Marshall’s analysis cannot account for Giffen
                   goods.
      (b)   Define weak axiom of revealed preference. Do the following
            choices satisfy WARP? Explain your answer.
      Situation          Prices                   Quantities
                         px          py           x          y
            I            4           6            6          6
            II           6           3            10         0

3.    (a)   Let there be two individuals A and B with MRS for
            intertemporal               consumption        given          by
                          A               B
                        C               C
             MRSC0 .C1  1 , MRSC0 .C1  1 ,
                 A
                          A
                                B
                                          B
                                               Let     the     corresponding
                        C0              C0
            endowments be (10.100) for A and (50, 20) for B. Find out
            who would lend and who would borrow and by what amount?
            What would be the equilibrium rate of interest and
            intertemporal price ratio?
                                  P
      (b)   “ The expression r  0  1 defines the premium on the value of a
                                   P1
            unit of current consumption in comparison with consumption


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B.A. (Hons) Economics-II Year                                          Paper – IV

            one year in the future.” Discuss in the context of intertemporal
            consumptive optimum and lending-borrowing equilibrium.

4.    (a)   Distinguish between an ordinary and a compensated demand
            curve. Explain why the slope of a compensated demand curve
            is unambiguously negative or zero.
      (b)   A well-known movie star said in an interview:”Earlier I had to
            work really hard to establish myself. Sometimes I even worked 7
            days a week for all 12 months a year. However, these days, as I
            am much more comfortable financially, I have decided to take
            it easy and enjoy my life. I go on long    vacations        and
            usually work only for a few months in a year.” Explain in light
            of the modified Slutsky equation. Can leisure    be considered
            a Giffen good for her?

5.    (a)   You are given two income streams:
            (i) Rs. 50/- per year forever (starting from next year).
            (ii) Rs. 120/- after one year, Rs.140/- after two years and Rs.
            620/- after four years.
      (b)   Distinguish between a risk-lover and a risk-averse consumer.
            Show that a risk-averse consumer, maximizing a von Neumann-
            Morgenstern utility function, when offered a fair insurance
            against a loss, will choose to fully insure.

6.    (a)   Using the Lagrangian method, show that output maximizing
            under a given cost constraint leads to identical optimality
            criterion as cost minimization under a given output
            constraint.
      (b)   Distinguish between the concept of return to a factor and
            returns to scale. Is the production function represented by
            Q  73.87L 0.763K 0.213 characterized by IRS, CRS or DRS?
      (c)   Show that the money rate of interest equals the real rate of
            interest plus the anticipated rate of inflation.


MICRO ECONOMICS

1.    (a)   A monopolist’s demand curve for labour will be downward
            sloping even if the marginal physical product of labour is
            constant. True/false? Why.
      (b)   Suppose that rents are highest in the Cannaught place area of
            Delhi. Will you agree with the statement that cinema tickets




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B.A. (Hons) Economics-II Year                                     Paper – IV

            cost more in Cannaught place because of higher rent? Give
            reason in support of your answer.
      (c)   If MRT x y = 3/2 while MRS x y = 2 for individuals A and B,
            should the economy produce more of X or more of Y to reach
            equilibrium of production and exchange simultaneously.
      (d)   Interpret the element of the (1-A)-1 matrix.
      (e)   What is Quasi Rent? Must it always be non-negative?

2.    Derive graphically a monopolist’s demand curve for a variable factor
      when several variable factor are used. If a group of monopolists use
      this variable factor, derive the market demand curve for the variable
      factor.

3.    (a)   Suppose that the labourers face a monopsonistic buyers of
            labour. Assume that labour is the only variable factor for the
            monopolist. The supply of labour and the marginal revenue
            product (MRP) curves are given by the following equations:
            W = 50 + 5L
            and MRP = 180 – 3L
            (Where W is the wage rate and L the quantity of labour).
            Determine the wage rate and the level of employment when the
            monopsonist maximizes his profits.
            What is the wage rate if the labourers from a union and want to
            maximize their total wages without losing any employment as
            compared to (i) above?
      (b)   Calculate the market equilibrium value for the following assets.
            Assume the market rate of interest is 10%.
            (i) A bond that pays Rs. 100 interest per year for two years
            and is paid of at Rs. 1000 at the end of two years.
            (ii) A building that will earn Rs. 100 per year for two years
            and then will earn Rs. 50 per year indefinitely into the future.

4.    (a)   A firm wants to reach two types of customers:
            Households having less than Rs.1lakh or more of family income
            and those having income of less than Rs.1lakh. The first
            category twice as much as the second group. One unit of T.V
            advertisement reaches 2000 families of first group and 8000
            families of second group and costs Rs. 20,000 while
            advertisement in a magazine cost Rs. 12,000 and reaches 6,000
            and 3,000 families respectively. No more than 12
            advertisements have to be given. The magazine and at least 6
            TV advertisements have to be given. The Advertisement budget
            is Rs. 1, 80, 000. Assume that every contracted family



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            purchases the company product. The firm wants to maximize its
            sales.
      Write the above problem as a linear programming problem defining all
      variables used.
      Plot the feasible region and fine the optimum solution to the above
      problem.
(b)   The following gives the technology matrix for a two sector economy
      consisting of agriculture and manufacturing industries.
                                Ag          Mfg
            Agr                 0.5         0.3
            Mfg                 0.3         0.2
            Lab                 0.5         0.33
      Find demand for the two industries are 11 and 12 respectively. Write
      down the 1-0 table for the economy. Calculate total units of labour
      required. If total labour available is 14; is the solution feasible.

5.    (a)   Distinguish between transfer earnings and economic rent. What
            proportion of total income would be economic rent if you have a
            fully elastic or a fully inelastic supply curve of a factor.
      (b)   Given the industry demand function for labour-
                  QDL = 800 – 15 PL
            Where Pn is the price of labour in rupees per day.
            Find the amount of economic rent if the supply function of
            labour to the industry is –
                  QSL = 50 PL - 500

6.    (a)   Explain with the help of an Edgeworth box diagram the trading
            process between two customers when one attempt to behave as
            a monopolist.
      (b)   Robinson Crusoe has 12 hours per day to catch fish or gather
            coconuts. He can catch 4 fish per hour or pick 16 coconuts per
            hour. His utility function is U (F, C)= F.C. where F and C are his
            daily consumption of fish and coconuts respectively. How many
            fish will he choose to catch per day and how many coconuts will
            he pick per day.



HOME EXAMINATION 2008

1.    What do you mean by the following (answer any four):
      (a)   Concave preferences



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      (b)   Monotonic transformation
      (c)   Strong Axiom of revealed preference
      (d)   Downward sloping income offer curve
      (e)   Diminishing MRTS
      (f)   Economies of scope
      (g)   Opportunity cost

2.    (a)   Show    that      Cobb-douglas        preferences      are    homothetic
            preferences.
      (b)   Given marked prices p1 , p 2  for the two goods, then at
            equilibrium everyone will be willing to trade off the two goods in
            the same way. Prove or refute this statement.

3.    (a)   ‘Slylsky equation shows that total change in demand, resulting
            from change in price, is the sum of substitution and income
            effects. Explain.
      (b)   When prices are p1 , p 2  = (1, 2) a consumer demands
            x1 , x 2   1, 2 and when prices are q1 , q 2   2, 1 , the consumer
            demands y1 , y 2   2, 1 . Is this behaviour consistent with the
            model of maximizing behaviour?
4.    (a)   The MPL in production is 50 computer chips per hours. The
            MRTS of labour per hour for hours of machine capital is 1/4 .
            What is the MPK .
      (b)   With the help of isoquent, show the cost-optimising input use
            for a level of output.
5.    (a)   Show the duality between cost and production in the short run.
            How do we derive Ac and MC curves from short run total cost
            curve?
      (b)   Show that increasing returns to scale co-exists with diminishing
            marginal returns.



ST. STEPHEN'S COLLEGE
(INTERNAL EXAMINATION) JANUARY 2008

1.    Attempt any three of the following: All questions carry equal marks.
      (a)   Consider a two-period model in which an Individual has an
            endowment of income given by m1 , m 2  . Suppose that initially he
            is a lender in period 1. If the rate of interest falls and his



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            preferences are well-behaved, will he remain a lender? Explain
            using revealed preference theory.
      (b)   Show that for a fixed-proportions production function, the cost
            function is linear.
      (c)   Explain why von Neumann-Morgenstern utility function takes
            an additively separable form.
      (d)   What is excess capacity? With the help of suitable diagrams,
            show that in the long run firms under monopolistic competition
            operate with excess capacity at equilibrium.
      (e)   Consider a firm which faces a demand function Q(P, A) where P
            is the price of the commodity it sells and A is the advertising
            expenditure. If the firm has some monopoly power in the
            market, show that the amount firm spends on advertisement is
            inversely proportional to elasticity of demand.
2.    (a)   (i) How is the preference approach to consumer behaviour
            different from the Revealed preference theory?
            (ii] Suppose a consumer buys 11 units of x and 3 units of y in
            the first period when the prices are p x  2 and p y  1 in the
            second period, p x and p y  2 and the consumer buys 10 units
            of x and 10 units of y. Prove that this set of choices is not
            consistent with Weak Axiom of revealed preference.
      (b]   Consider a strictly risk-averse, expected utility maximising
            decision maker who has an initial wealth of w, but runs a risk of
            a loss of D Rupees. Let the probability of loss p. Suppose he can
            buy insurance, where one unit of insurance costs q Rupees and
            pays one rupee if the loss occurs. Let the amount of insurance
            bought, a, be strictly positive. Show that if insurance is
            actuarially fair (i.e. q = p), then the individual will insure
            completely.
3.    (a)   Consider a utility function ?????
      (b)   Consider a consumer who has a utility function U  xy . Price
            of good x is Rs. 5 and that of good y is Rs. 10. The income of the
            consumer is Rs. 100. Find the Slutsky substitution and income
            effects.
      (c)   Consider a Slutsky decomposition of price effect in a two good
            model where the consumer has certain amount of endowment of
            both the goods. Suppose both goods are normal and price of
            good 1 falls. Explain intuitively why the endowment income
            effect works in the opposite direction of an ordinary income
            effect.




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4.    (a)   What is the difference between fixed and sunk costs?' Can they
            be recovered when the firm shuts down? Explain with help of
            example.
      (b)   It is possible to have decreasing marginal products for all
            inputs, and yet have increasing returns to scale. True or false?
            Explain.
      (c)   A firm is producing two commodities : Products X and Y. The
            total cost (TC) of producing the goods is given by :
            TC = aX + bY – cXY
            Where a, b and c are positive constants. Does this total cost
            function exhibit economies of scope?
5.    (a)   Explain how peak-load pricing is different from third-degree
            price discrimination. Are these strategies adopted for the same
            objectives?
      (b)   Consider the following simultaneous games
                                   Player 2
                           A                  B
                 A         (3, 2)             (0, 0)
      Player 1
                 B         (0, 0)             (2, 3)
      (i) Does there exist a dominant strategy for each player?
      (ii) Determine the pure strategy Nash equilibrium in this game.
      (iii) Find the mixed strategy Nash equilibrium.
6.    (a)   Consider a monopolist who was using a single-price policy in a
            market with many consumers. If he adopts a two par tariff,
            what will be the effect on the consumers.
      (b)   Consider a duopoly market in which the demand functions for
            each firm is given by:
            Firm 1 : Q1  21  2p 1  p 2
            Firm 2 : Q 2  21  p1  2p 2
      There are no variable costs for the firms but each incurs a fixed cost of
      Rs. 10
            (i) Find the Berttand-Nash equilibrium
            (ii) If the firms cooperate and agree to maximize total profits,
            what is the equilibrium price they will charge?
            (iii) Show that the collusion outcome is unstable.


MID-SESSION EXAMINATION 2007-2008



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1.    Do any three parts
      (a)   In a 2 x 2 pure exchange economy with two consumers A and B
            and two goods X and Y, if A is perfectly discriminating
            monopolist, will the outcome be efficient?
      (b)   A consumer consumes two goods, 1 and 2 of which good 1 is a
            neutral good. Draw his indifference curves between good 1 and
            good 2. What is his Marginal rate of substitution of good 1 for
            good 2?
      (c)   Explain the Prisoners Dilemna.
      (d)   A borrower is made worse off by an increase in the interest rate.
            True or False? Explain.
      (e)   For the Cobb-Douglas production function Y  30L1/2 K given
            PK  10 and PL  5 , what combination of L and K minimizes the
            cost of producing any given level of output? What combination
            would be used to produce Y  60 2 ?

2.    How is peak load pricing a form of price discrimination? Can it make
      consumers better off? Give an example.

3.    Define Risk Averse. What is the expected utility of an economic agent
      (with wealth w) from investment of Rs. x, which gives a rate of return
      r, with probability π and rate of return r2 with probability 1 π , with
       r1  0 and r2  0 . If such a consumer is risk averse will the optional
      investment (value of x) be zero? Explain.

4.    Explain the determination of price and output in the model of
      oligopoly where the dominant firm is a quantity leader.

5.    Suppose two restaurants, Wonder Burger and Pizza Delite are
      considering two options, offering a weekend discount to students r
      not. Their payoffs from these in terms of weekly profits are
                                 Wonder             Burger
                                  Discount          Discount
      Pizza Delite   No Discount 1000, 1000         1000, 2000
                     Discount    2000, 1000         0, 0
      Does the game have a dominant strategy equilibrium? What if any, are
      the Nash equilibria in pure strategies? Find a mixed strategy
      equilibrium for this game.

6.    Consider the following game, where two players A and B can choose
      from two strategies Big and Little. Their pay offs are as follows:
                     L             B                  B
      A              L             1000, 1000         0, 0
                     B             0, 0               500, 500


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      Does this game have a DSE? What are the Nash equilibria in pure
      strategies? In one Nash equilibrium Pareto superior to the other(s)?



SRI GURU GOBIND SINGH COLLEGE OF COMMERCE (UNIVERSITY OF
DELHI)

Answer any four
1.    (a)   Well-behaved preferences are monotonic and convex. Explain
            the statement with a diagram.
      (b)   Which of the following are monotonic transformations?
            (i) u=2v –17
            (ii) u = u3
            (iii) u = u + 19
            (iv) u = v2
            (v) u = 1/v2
      (c)   Can you explain why taking a monotonic transformation of a
            utility function does not change the MRS?

2.    (a)   Show that Perfect Substitutes are an example of homothetic
            preferences. Derive Price Offer Curve and Demand Curve in case
            of Perfect substitutes.
      (b)   When Prices are (P1, P2) = (6.5) a consumer demands (X1 X2) =
            (5, 6), and when Prices are (Q1 Q2) = (5, 6), the consumer
            demands (Y1 Y2) = (6, 5). Is this behaviour consistent with the
            model of maximizing behaviour? State WARP and explain how it
            can be used to check consistent behaviour.
3.    (a)   What is endowment Income Effect? Explain Price Effect using
            the same?
      (b)   Suppose a dairy farmer produces 60 Its. of milk a week. The
            initial price of milk is Rs. 4 per litre and later changes to Rs.3
            per litre. Given his demand function X1  10  m/10P 1 , Calculate
            the Endowment Income effect.
4.    (a)   Suppose the economy takes a downturn, and that labour costs
            fall by 50% and are expected to stay at that level for a long time.
            Show graphically how this change in the relative price of L and
            K affects the firm's expansion-path.
      (b)   Explain how effluent fees can have an impact on input-choices
            of a plant.




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5.    What is the' lowest Price that a monopoly firm practicing perfect first
      degree price-discrimination charges? What will be its total Output and
      Consumer Surplus?



HANS RAJ COLLEGE MID TERM EXAMINATION 2008

1.    Answer any three parts:
      (i)     Draw the price offer curve of an individual who has a cobb-
              douglas utility function.
      (ii)    Can x = (Py, Y)/Px be a valid demand function? Give reason for
              your answer.
      (iii)   Assume a quasi-linear utility function. Can you say what would
              happen to the demand for commodity x if the price of
              commodity y falls? Assume convex preference.
      (iv)    Define and distinguish between dominant strategy equilibrium
              and Nash equilibrium.
      (v)     What would happen to a lender’s present year consumption if
              the rate of interest increases?
2.    (i)     Ms. Renu has Rs. 1000 to spend on cloth (C) and food (F). The
              price of the two item is Rs. 50 and Rs. 100 respectively. She
              only has 100 minutes to devote to shopping and it takes her 10
              and 5 minutes respectively to choose each unit of these
              commodities. Her utility function is given U = FC.
              (a)   Draw her budget line.
              (b)   How much will the consume of two commodities?
      (ii)    What would happen to the saving done by a lender if the rate of
              interest goes up?

3.    (i)     When the price of x and y are Rs. 1, individual A buys 6 units of
              x and 4 units of y, and individual B buys 4 units of x and 6
              units of y. The price of x then rises to Rs. 2 and that of y falls to
              Rs. 0.50. At the same time the income of individual A falls and
              that of B rises. A now buys 3 units of x and 5 of y and B 8 units
              of x and 3 of y.
              (a) Does consumer A violate the weak axiom of revealed
              preference?
              (b) Does consumer B?
              (c) Suppose we aggregate the consumption of A and B. Will this
              aggregated total satisfy weak axiom of revealed preference?



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      (ii)   Work out the relation between real rate of interest, money rate
             of interest and the rate of inflation.

4.    (i)    Let firm A be the only producer of shaving blades and firm B is
             planning to enter as the market is giving good returns. Firm A
             can either fight him with advertisements or let him come in. The
             payoff matrix in Rs. Lakhs is given below:
                                                 Firm A
                                   Fight                       Not fight
                    Not Enter      10, 90                      10, 80
      Firm B
                    Enter          0, 0                        20, 10
             (a)    Identify Nash equilibrium if it exits. Explain why others
                    are not Nash
             (b)    Suppose Firm A can increase capacity and then fight
                    better and hence can make a profit of Rs. 20 lakhs if it
                    fights when B enters. Write the game in extensive form.
                    Will firm A create this capacity? Explain your answer.
      (ii)   Suppose electricity demand increases sharply for some hours.
             How can a monopolist take advantage of this using a peak-load
             pricing? How is it different? How can a regulator ensure that the
             gains in efficiency go to the consumers?

5.    (i)    A monopoly sells in two countries, and resales between the
             countries are impossible. The demand curves in the two
             countries are:
             P1 = 100 – Q1
             P2 = 120 – 2Q2
             (a)    The monopolist’s marginal cost is Rs. 30. Solve the
                    equilibrium price in each country.
             (b)    Suppose the monopolist treats both countries as one and
                    wants to charge only one price. What price he should
                    charge. Compare the profit in the two situations.
      (ii)   How good is Price rigidity model in explaining behavior of firms
             under oligopoly? What are its shortcomings?


MID-TERM EXAMINATION – 2008

1.    (a)     UX1, X2   4 X1  X2 . If X1  9, X 2  10 . Find his total utility. If
             initially 81 units of X1 and 14 units of X 2 were being consumed
             how much X 2 an individual is willing to give up to consume 40
             more X1 .


Bliss Point Studies                                                     Ravinder N. Jha
9891555578                                  37                            9811343411
B.A. (Hons) Economics-II Year                                         Paper – IV

      (b)   X  L3/4 K1/4 . Does law of DML L hold. If labour increases will
            marginal product of capital increase or decrease.
      (c)   Cost function for a good x is given as C  a  bx  cx2  dx 3 . Find
            TFC, AFC, TVC, AVC and MC. What is x when AVC is minimum.
      (d)   Income stream given by a project is a follows – 110 after one
            year, -121 after two years and +66.5 thereafter indefinitely into
            the future. If rate of interest is 10% should the project be
            undertaken.
      (e)   Using slutsky equation show the effect of wage increase on
            supply of labour. How can one ensure that labour works large
            hour.
      (f)   What is peak load pricing? Explain using a diagram.

2.    When price of gasoline is Rs. 2 per gallon, Herry consumes 1000
      gallons per year. The price rises to Rs. 25 and to compensate Harry for
      the loss he suffers the government gives him a cash transfer of Rs.
      500 per year. Will Herry he better-off or worse off as a result of the
      change. Will he consume the same amount of gasoline as before the
      change.

3.    (a)   Differentiate the reasons for a U-shaped SATC and U-shaped
            LAC curves. If DRF start from the very first unit of output, can
            the SATC curve have U-shape.
      (b)   Is it possible to have constant LAC curve in this case.

4.    Given the market odd equation as P = 50 – 0.5Q MC = 0. Find
      (a)   Competitive equilibrium output, price & profit.
      (b)   Monopoly output, price & profit.
      (c)   Duopoly output, price & profit.
      (d)   (i) Cournot solution assuming homogeneous good
            (ii) Stackel berg’s solution.
      Why the price competition is not the best policy with a homogenous
      good.

5.    A firm is deciding to advertise its product, what is the equilibrium
      amount of advertising that the firm must do. How does advertising
      effect the output produced.
      Given P  100  3Q  4JA
      C  4Q 2  10Q  A
      are equilibrium values the P, Q and A. (Hint : Find II function &
      differentiate w.r.t Q & A putting each = 0).



Bliss Point Studies                                               Ravinder N. Jha
9891555578                              38                          9811343411
B.A. (Hons) Economics-II Year              Paper – IV




                                *****




Bliss Point Studies                     Ravinder N. Jha
9891555578                        39      9811343411

								
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