Principls of Microeconomic nJ3qscm4Jj

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SARLA ANm MODI ; SCHOOL OF EcONdrcs r
AcademicYear: 2022-23 f'
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Program: Bachelor of science aEconomics)
Subject: Principles of Microeconomies r
r Year: I Semester: I r
Batch: 2022-23 / 2021-22
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Date: 19 December 2022 r Time: loco am to 1230 pin r
Marks:50 ./ Duntion:2Ou) r
No. of pages:.i
REAL HAMINATI0N / RE-KAMINATlqu ,
Instruction-s-: Candid=t=Ts'hoLla :arefuuy read the instmctions printed on the question

paper and on the cover of the answer book provided.
1. Question No. 1 is compulsory
2. Attempt any 3 questions from the remaining

3. In all 4 questions to be attempted
4. Figures in brackets to the right indicate maximum marks
5. Answer every new question on a fresh page

6. Draw diagrams wherever applicable
7. Assume suitable data if neeessary
Q1(A) Explain the natire and consequences of asymmetric information for cach of the
following cases. What options are available in each instance to reduce the problem?
i). Medical insurance (1.5)
ii). Issuance of credit cards (1.5)
QI Q) i) If the average number of mobiles per household in India is 2, and if the average
income of an Indian household increases from Q5000 to € 35000, given the income elasticity
of mobiles is 5/4 what would be the average number of mobiles per household with the
increase in income? (3)
ii)Ifthepriceelastieityoimobilesisestinatedtobe-1.4andthereisa10%increasein
price,whatwouldbetheinpactonthetotaldemandandtherevenueofcompaniesselling
mobile phones? (2)
Q1(C) If a tim faces perfect competition in the international market and monopoly in the
domestic market, would it help the fin to practice price discrimination? Explain with the
help of diagrams. (5)
Ql@)If the Cost froction of a fin is C = 100+ 5Q+ 2Q2 find at 5 units of outptry
i) Average Variable Cost (I/2)
ii) Average Fixed Costs (1/2)
iii) Marginal Cost if output is in discrete units (1)
Qlal) What is the effect of the following on the industry's long nm supply curve under
perfect competition
i) hput costs of the industry increase
ii) No change in cost of inputs
Q2 (A) Ajay is an insurance agent and he is short of his monthly target of selling insurance
policies..He has 3 proapective customers whose Utility functions for wealth ae the following:
Chitra `s Utility function U®= 5V7
Aneri's Utility function U®= 5 I
Puja's Utility function Uar 5 12

All 3 are of the sane age, having good health and sanie family reaponsibility. He has tine to
make only one sales call. Who should Ajay call and why? (4)
Q2a})i) If the production function of a fim is Q= 5`/fr and output produced is 40 units. The
Marginal Rate of Technical substitution is %. Calculate the number of units of lal>our and
capital the firm would employ to minirT`i7'e costs. (3)
ii) Is it possible for a firm to have dininishing marginal refums and increasing refums to
scale in the long run? Explain. (3)
Q3(A) h a perfectly competitive market the Markct Demand is Qd= 3000 - 20 P

Market Supply is Qs= 80P
Where P is price Qd is market demand and Qs is market supply.
All the fins in the industry are identical and have the sane costs and output.
The total cost of the fim is C(q)= 5o + q2
i) Calculate the equilibrium price and quantity of each tim.
ii) What is the number of firms in the industr)€
iii)Would you expect to see entry or exit of fins in the long run? Substantiate your answer
with proof. (2)
Q3q})Anitawascel6bratingherbirthdayinthesocietygarden.ShehadhiredaDJwhowas
playing loud music. Amen who lived in the society was getting disturbed as he was studying
for his board eins.
2/3 ,p
i) Show how coase's theorem could be used here to lead to an efficient solution. (2)
ii) If Anita was playing music after the 9 pin deadline imposed by the scoiety, would there be
any changes to arrive at an efficient solution? (2)
iii) What are the conditions that need to be rfulfilled for an efficient solution? (1)
Q4(A)i) Explain Consumers surplus i]ffl the help Of indifference curves when marginal
utifty of money is assumed to be constant. (2)
ii) Compare the difference in the consumers surplus if we drop the assumption of constant
marginal utility of money. (3)
Q4a}) How does Hicks show the decomposition of price effect into income and substitution
effect without the use of indifference curves for a giffen good? (5)
Q5(A) The demand curve, marginl revenue and marginal cost curve for a monopoly fin are
- given as fouows:
P=360-4Q MR=360-8Q MC=4Q
i).Calculatelevelofoutputandpricethatmaximizesthesumofconsumersuaplusand
producer surplus?
ii). Calculate the profit maximizing level of output and price?
Q5 Q>). Explain the distinction between Hcksian and Slutsky's price effect with the help of
indiffelence curves. (3)
Q5(c). Suppose the cable TV industry is curently unregulated. However, due to complaints
from consumers that the price of cable TV is too hidr the legislature is considering placing a
price ceiling on cable TV below the cunent equilibrium price. Ass`ming the goverrment
does make this price ceiling law, construct a diagram that chows the impact of this law on the
cable TV market, and briefly explain the effects on market prices and quantities with supply
and demand analysis. (2)
3/3

Principls of Microeconomic nJ3qscm4Jj

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iEinELEE

Instruction-s-: Candid=t=Ts'hoLla :arefuuy read the instmctions printed on the question

2. Attempt any 3 questions from the remaining

5. Answer every new question on a fresh page

i). Medical insurance (1.5)

ii). Issuance of credit cards (1.5)

ii) No change in cost of inputs

Chitra `s Utility function U®= 5V7

Aneri's Utility function U®= 5 I

Puja's Utility function Uar 5 12

Q3(A) h a perfectly competitive market the Markct Demand is Qd= 3000 - 20 P

Where P is price Qd is market demand and Qs is market supply.

The total cost of the fim is C(q)= 5o + q2

i) Calculate the equilibrium price and quantity of each tim.

ii) What is the number of firms in the industr)€

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