- Microeconomic Analysis,

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Are you looking to download a PDF soft copy of the Solved Assignment **MEC-01/MEC-101 - Microeconomic Analysis**? Then GullyBaba is the right place for you. We have the Assignment available in English and Hindi language.

This particular Assignment references the syllabus chosen for the subject of **Economics**, for the **July 2020 - January 2021** session. The code for the assignment is MEC-01/MEC-101 and it is often used by students who are enrolled in the MA Degree.

Once students have paid for the Assignment, they can Instantly Download to their PC, Laptop or Mobile Devices in soft copy as a PDF format. After studying the contents of this Assignment, students will have a better grasp of the subject and will be able to prepare for their upcoming tests.

**SECTION A**

**Answer all questions from this section.**

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

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

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

(i) Derive the indirect utility function

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

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

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

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

(i) The expected value of the game.

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

**SECTION B**

**Answer all questions from this section.**

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

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

MC1 = 20 + 2q1 and MC2= 10 + 5q2

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

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

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

(ii) Derive the equilibrium set of strategies.

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

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

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

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

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

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

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

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

- (a) Elucidate price and output determination under Cournot and Stackelberg models of Oligopoly.

(b) Consider a market for energy drinks consisting of only one firm. The firm has a linear cost function: C(q) = 4q, where q represents quantity produced by the firm. The market inverse demand function is given by P(Q) = 24 − 2Q, where Q represents total industry output. Based on the given information answer the following:

(i) What price will the firm charge? What quantity of energy drinks will the firm sell?

(ii) Now suppose a second firm enters the market. The second firm has an identical cost function. What will be the Cournot equilibrium output for each firm?

(iii) What is the Stackelberg equilibrium output for each firm if firm 2 enters second?

(iv) How much profit will each firm make in the Cournot game? How much in Stackelberg?

(v) Which type of market do consumers prefer: monopoly, Cournot duopoly or Stackelberg duopoly? Why? - (a) Consider an Edgeworth box that describes a two-person, two-commodity exchange scenario. Explain how trade takes place between the two individuals starting from the initial endowment position. What is the significance of the slope of the ray passing through a Pareto optimal point and the endowment point?

(b) Consider a pure-exchange economy of two individuals (A and B) and two goods (X and Y). Assume both the individuals are endowed with 2 units of good X and 1 unit of good Y each.

Let utility functions of individual A and B be UA = min {XA,YA} and UB = min {𝑋𝐵/4,YB}, where Xi and Yi for i = {A, B} represent individual i’s consumption of good X and Y respectively. Determine the aggregate excess demand functions for each good. - (a) How would you differentiate a Static game from a Dynamic game?

(b) Consider the following game.

i) Can Backward induction be applied in this game to find a solution?

(ii) What will be the Subgame Perfect Nash equilibria for the given game? - What is Kaldor’s compensation principle? How is it used to resolve Pareto non-comparability? How is it different from Hick's compensation principle?
- (a) Explain the concept of a Homothetic production function.

Given a production function

q = AL0.5K0.4

where q represents total production, L and K stands for labour and capital respectively, and A is the technology coefficient. What are the returns to scale for such a production function?

(b) “Homothetic production function includes Homogeneous production function as a special case.” Justify this statement. - (a) Differentiate between a Hicksian and a Walrasian demand function? Do they ever intersect? Explain.

(b) Consider a Cobb-Douglas utility function

U (X, Y) = 𝑋1/5𝑌4/5

where X and Y are the two goods that a consumer has an option to consume at per unit prices of PX and PY, respectively. Assume income of the consumer to be Rs M. Determine

(a) Uncompensated demand functions for goods X and Y

(b) Compensated demand functions for goods X and Y - Raj expects his future earnings to be worth Rs 100. If there is some unfortunate event, his expected future earnings will be Rs 25. The probability of an unfortunate event to occur is 2/3, while that of things remaining fortunate is 1/3 . Suppose his utility function is given by U(Y) = 𝑌1/2, where Y represents the amount of money. Now suppose an insurance company offers to fully insure Raj against the loss of earnings caused during an unfortunate event at an actuarially fair premium.

(i) Will Raj accept the insurance? Explain.

(ii) What would be the rate of actuarially fair premium charged in this case?

(iii) What would be the maximum amount that Raj would pay for the insurance?

- University IGNOU (Indira Gandhi National Open University)
- Title Microeconomic Analysis
- Language(s) English and Hindi
- Session July 2020 - January 2021
- Code MEC-01/MEC-101
- Subject Economics
- Degree(s) MA
- Course Core Courses (CC)
- Author Gullybaba.com Panel
- Publisher Gullybaba Publishing House Pvt. Ltd.

The IGNOU open learning format requires students to submit study Assignments. Here is the final end date of the submission of this particular assignment according to the university calendar.

**15th July 2021**(if Enrolled in the**July 2020**Session)**30th Sept. 2021**(if Enrolled in the**January 2021**Session).

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