### Section - I

1. Attempt any eight parts of the following questios. Answers to each part should be of approximatel 50 words.

Marks: 5 × 8 = 40

#### (a). Distinguish between Marshallian and Walrasian stability analysis.

(Comment for solution.)

#### (b) Discuss "Nash Equilibrium" for non-collusive firms.

Nash Equilibrium for non-collusive firm is likely to be a perfect competition price because all firms may fear that other firms will cut their prices to appropriate more market share. This price war will utlimately result in the lowest possible price which is obviously the perfect competition price.

#### (c) What are the basic features and the limitations of Leontief's input-output model?

(Comment for solution.)

#### (d) How can you measure income inequality by using Lorenz curve method?

(Comment for solution.)

#### (e) Suppose you have a demand function for milk of the form $${x_1} = 100 + \frac{m}{{100{p_1}}}$$ and your weekly income (m) is ₹ 12,000 and the price of milk $$\left( {{p_1}} \right)$$ is ₹ 20 per litre. Now suppose the price of milk falls from ₹ 20 to ₹ 15 per litre, then what will be the substitution effect?

(Comment for solution.)

#### (f) Explain 'dead-weight' loss in a monopoly situation.

(Comment for solution.)

#### (g) Define the terms 'white noise' and 'random walk' in time series analysis.

(Comment for solution.)

#### (h) Show graphically on your answer-book that if a consumer buys only two goods, both cannot be inferior at the same time.

(Comment for solution.)

#### (i) Highlight the role of market signalling when there is asymmetric information.

(Comment for solution.)

### Section - II

Answer any ten of the following questions in about 150 words each.

Marks: 12 × 10 = 120

#### 2. Separate income effect from substitution effect for a price change using (i) Hicks' method (ii) Slutsky's method. Hence explain the difference between the two compensated demand curves.

(Comment for solution.)

#### 3. Assume that the market demand is $$P = 100 - 0 \cdot 5({X_1} + {X_2})$$ and the two collusive firms have costs given by $${C_1} = 5{X_1}$$ and $${C_2} = 0 \cdot 5X_2^2$$. Calculate the joint profit of the firms.

(Comment for solution.)

#### 4. Compare different methods of measuring risk aversion.

(Comment for solution.)

#### 5. What are 'ridge lines'? What are their implications in the theory of the firm?

(Comment for solution.)

#### 6. Distinguish between compensating variation and equivalent variation of the budget line. How can you measure consumer's surplus using these two concepts?

(Comment for solution.)

#### 7. Derive an expression for elasticity of factor substitution for C.E.S. production function and use it to establish that Cobb-Douglas production function is a special case of C.E.S. production function.

(Comment for solution.)

Solution video:

#### 10. Explain the relationship between slope and elasticity of a straight line demand curve.

(Comment for solution.)

#### 11. "In the long run, a perfectly competitive firm will be earning just normal profit." Discuss.

(Comment for solution.)

#### 12. What is 'Prisoner's Dilemma'? Discuss its importance and implications in Game theory.

(Comment for solution.)

### Section - III

Attempt any two of the following questios. Each answer should be in about 250 words each.

Marks: 20 × 2 = 40

#### 13. What is 'moral hazard' problem? How does it lead to inefficient allocation of resources? Suggest remedial measures.

(Comment for solution.)

#### 14. In a discriminating monopoly, the total demand function is P = 100 - 2X and demand function of segmented markets are ${P_1} = 80 - 2 \cdot 5{X_1}\,\,\,{\rm{and}}$ ${P_2} = 180 - 10{X_2}$ The cost function is $C = 50 + 40({X_1} + {X_2});\,\,\,{\rm{where}}\,\,\,\,\,{X_1} + {X_2} = X$ Calculate the profit of the monopolist; (i) with discrimination and (ii) without discrimination.

(Comment for solution.)

#### 15. Compare and contrast the theories of social choice as propounded by PRofessor A.K. Sen and Professor K.J. Arrow.

(Comment for solution.)