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ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD(Department of
Economics)
WARNING1. PLAGIARISM OR HIRING OF GHOST WRITER(S) FOR
SOLVING
THE ASSIGNMENT(S) WILL DEBAR THE STUDENT FROM AWARDOF
DEGREE/CERTIFICATE, IF FOUND AT ANY STAGE.
2. SUBMITTING ASSIGNMENTS BORROWED OR STOLEN FROMOTHER(S) AS
ONES OWN WILL BE PENALIZED AS DEFINED INAIOU PLAGIARISM POLICY.
ASSIGNMENT No. 1(Units 14)
Course: Advance Microeconomics (2700) Semester: Spring,
2010Level: M. Phil Total Marks: 100
Q.1 (a) Show the equilibrium position of a consumer if,
)1()2(21++= xxU
41=
xP and 6
2
=x
P and Income (Y ) of the consumer .130= What are
the income and price elasticities
(b) Derive the compensated demand curve if XYU = and 1=Px and
Y(income) = 200. Show consumer gain in terms of CV if P falls from
1 to 0.5 (20)
Q.2 Using the following CES production function
[ ] 21
224.06.0
+= LKQ(a) Derive the elasticity of substitution. If 1= , what
would be general
shape of isoquants for positive K and L?
(b) Show the relative the relative income share when 1=K and L
=2
1
(c) What if L now rises to 1. Is this consistent with your
finding aboutLK
.
(20)
Q.3 Given the following production function32 QQQK +=
Where K is capital per period and q is output per period.
Derive the firms supply curve if 1=Kw
How much will it produce per period of P = 1? And if P =2
1
How much profit is made if P = 1 and P = 2
1
(20)
Q.4 Give the following demand function of a firm
XP 20.06=
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And average cost function
206.03.026 XXx
AC ++=
Where X output of the firm and P is the price of output (X).
Find the equilibriumoutput (X) which gives(a) Maximum total
revenue(b) Minimum marginal cost(c) Maximum profit (20)
Q.5 Define cartels. Also discuss the problem which may be faced
by the firms in thecartels. Let there are large number of firms
which can provide platinum with thefollowing cost function
25100500 XXC ++=
The competitive demand for platinum is
XP101250 =
What would be the competitive equilibrium of this industry? What
is the
equilibrium number of firms? Suppose cartel wished to use
revenue pooling as a
method of restricting output. What fraction of revenue would
they require firms to
put into the pool? (20)
ASSIGNMENT No. 2(Units 59)
Q.1 (a) Define and illustrate with an example the importance of
calculating discountrate and present value in the evaluation of a
project. (10)
(b) In a certain five years plan, it is decided that the
investment should increase
from 12 billion to 20 billion. Calculate the required annual
rate of investmentto achieve this target. (10)
Q.2 (a) Discuss the expected utility approach in studying the
uncertainty problem inmicroeconomics. (10)
(b) Give the following payoff matrix and probabilities. (10)
Plan State 1 State 2
A 100 100
B 200 50
Probability 0.30 0.70Show the expected value of income in both
decisionsDraw a diagram to show that if u(x) is concave (downward)
then
E (u I A) > E (u I B)
Q.3 Discuss in detail the possibility of general equilibrium in
both production andconsumption simultaneously. (20)
Q.4 (a) Discuss how an economy can reach to social justice and
social optimum. (10)
(b) GiveAAA yxuyx ==+ ,8022 BBB yxu = BAuuw = w = u
AuB
How much x and y should be produced and how should it be
distributed? (10)
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