IGNOU MEC 101 SOLVED ASSIGNMENT 2021-22
MEC-101: MICROECONOMIC ANALYSIS SOLVED
ASSIGNMENT 201-22
Course Code: MEC-002
Assignment Code:
MEC-002/2021-22
Total Marks: 100
SECTION A
Answer all
questions from this section. 2×20 = 40
1.(a) “In
terms of the type of good, that is whether a good is normal or inferior, the
relationship between the compensated and the uncompensated demand curves
varies,” Justify the statement graphically. (8)
(b) A consumer’s preferences over goods A and B is given by
the utility function
U (A, B) = 𝐴 1/2 𝐵 1/ 3
Let pA be
the price of good A, pB the price of good B and let consumer’s income be given
by I.
(i)
Derive
the indirect utility function
(ii)
What
is meant by Dual problem in context of the Utility and Expenditure optimisation
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. (6)
(b) Given the von Neumann-Morgenstern utility function of an
individual, U (W) = 𝑙𝑛𝑊 where W stands for amount of money
and ln is the natural logarithm. Comment upon attitude towards risk of such an
individual with the help of a diagram. (6)
(c) Now, suppose this
individual plays a game of tossing a coin where he wins Rs 2 if head turns up
and nothing if tail turns up.On the basis of the given information, find
(i) The expected value
of the game. (4)
(ii) The risk premium
this person will be willing to pay to avoid the risk associated with the game.
SECTION B
Answer all questions
from this section. 5×12 = 60
3. (a) Differentiate between the Cournot and the Stackelberg
models of Oligopoly.Under the Stackelberg assumptions, the Cournot solution is
achieved if each firm desires to act as a follower. Do you agree? Elaborate.
(6)
(b) A monopolist operates under two
plants, 1 and 2. The marginal costs of the two plantsare given by
where q1 and q2 represent units of output produced by plant 1 and 2 respectively. If the price of this product is given by 20 –3(q1 + q2), how much should the firm plan to produce
in each plant, and at what price should it plan to sell the
product? (6)
4. (a) Consider there
are two firms 1 and 2 serving an entire market for a commodity. They have
constant average costs of Rs 20 per unit. The firms can choose either a high
price (Rs 100) or a low price (Rs 50) for their output.When both firms set a
high price, total demand is1000 units which is split evenly betweenthe two
firms. When both set a low price, total demand is 1800, which is again split
evenly.If one firm sets a low price and the second a high price, the low-priced
firm sells 1500 units, the high-priced firm only 200 units. Analyse the pricing
decisions of the two firms as a non-co-operative game and attempt the
following: (6)
(i) Construct the pay-off matrix, where the elements ofeach cell of the matrix are the two firms’ profits.
(ii) Derive the equilibrium set
of strategies.
(iii) Explain why this
is an example of the Prisoners’ Dilemma game.
(b) What is the Bayesian Nash equilibrium? How is it
different from Perfect Bayesian equilibrium?
5. What is Kaldor’s compensation principle? How is it different from Hick's compensation principle? (12)
6. (a) “Homothetic
production function includes Homogeneous production function as a special
case.” Justify this statement. (6)
(b) Consider a
production function: Q = f (L), where Q represents the output and L is the
factor of production. Let w be the per unit price of factor L and p be the per
unit price of output Q. Using the Envelope theorem determine the supply
function and the factor demand function. (6)
7. (a) What are the assumptions on which the First
fundamental theorem of welfare economics rests?
(b) Consider a
pure-exchange economy of two individuals (A and B) and two goods (X and Y).
Individual A is endowed with 1 unit of good X and none of good Y, while
individual B with 1 unit of good Y and none of good X. Assuming utility
function of individual A and B to be
UA = (XA)
α (YA) 1−α and UB = (XB)
β (YB) 1−β
where Xi and Yi for i = {A, B} represent individual i’s
consumption of good X and Y, respectively, and α, β are constants such that 0
< α, β < 1. Determine the Walrasian equilibrium price ratio.
FOR PDF AND
HANDWRITTEN
Whatsapp
8130208920
Post a Comment