Student Id.

Jindal School of Government and Public Policies

End-term Examination

Course Name : Microeconomics 1

Course Code : MIEC 1006
Programme : BA Economics Hons (2022)
Duration : 3 hours
Maximum Marks : 50

This question paper has (3) printed pages (including this page).

Instructions to students:

1. DO NOT write your Name and Student Id. No. anywhere on the answer book except on the space
provided.
2. DO NOT write anything on the question paper except Student Id. No. on the space provided.
3. Start each question on a new page.
4. Use of mobile phone, smart watch, Fitbit or any electronic storage and access system is prohibited.
5. Calculators are allowed.
5. Students undertaking the examination are requested to adhere to the University norms related to
examinations.
6. Please use Blue/Black pen with visible ink in all conditions.
__________________________________________________________________________________________

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This is a Closed Book examination. Students are not allowed to bring any material in the Examination
Hall. Calculators are allowed
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Warning: Plagiarism in any form is prohibited. Anyone found using unfair means will be penalized
severely.

End-term Examination – Spring’2023 Page 1

 Answer all questions.

Question 1: (5×2=10 points)

Prove or disprove the following:

A) Two indifference curves can cross

B) If consumers preferences satisfy monotonicity (more is better), then indifference curves will be
negatively sloped.

C) If x 1 and x 2 are perfect substitutes (1 to 1 substitution), then consumer will spend all his money to
buy x 1 if it is cheaper than x 2.

D) If a unit tax is imposed on the producer in a competitive market, then the producer can shift the
entire burden of the tax on the consumer.

E) For a preference ordering represented by the utility function U (x , y)=min {4 x , y } there is no

substitution effect for a price change of x (you may consider only the scenario where price of good x
decreases).

Question 2: (10 points)

A) Consider that a consumer chooses the amount of good x and good y. His utility function is
U ( x , y)=xy . The price of good x is 10 and the price of good y is 2. The income of the consumer is 420.
Find out the equilibrium quantities of x and y.
(5 points)

B) Consider that a consumer chooses the amount of good x and good y. His utility function is
U ( x , y)=min {x , y }. The price of good x is p x and the price of good y is p y . The income of the consumer
is M. Find the demand curve of good x.
(5 points)

Question 3: (10 points)

A) Consider the production function Q=K 0.5 L0.5 . Assume that capital is fixed in the short run at 25
units. What is the short run production function? Find out the average and marginal products of
labour.

End-term Examination – Spring’2023 Page 2

 (1+2+2 = 5 points)

B) Consider the production function Q=K+L. Find the average and marginal product of labour and
capital. Compute the long run cost function assuming wages to be w and rental rates to be r.
(5 points)

End-term Examination – Spring’2023 Page 3

Question 4: (10 points)

A) Using a well labelled and clear diagram explain what happens to consumer surplus and producer
surplus if output is artificially pushed above the perfectly competitive equilibrium. Will there be any
deadweight loss? Clearly identify the area of deadweight loss in the diagram. Why does this
deadweight loss occur?
(2+2+1 = 5 points)
B) A firm has cost curve C ( q )=100+ 200 q−40 q 2+8 q3. What are the equations of the firm’s average
cost, average variable cost, average fixed cost, and marginal cost? What are the minimum values of
the firm’s average variable cost and marginal cost and what levels of output do they occur? What is
the value of marginal cost when average variable cost is at a minimum?
(5 points)

Question 5:

A) Suppose that the demand function for a good is

Qd =184−11 p+4 p s−3 pc +3 Y

where, Qd is the quantity demanded, p is the price of the good, ps is the price of a substitute good, pc is
the price of a complement, and Y is income of the consumer. The supply function for the same good is

Qs =145+6 p−5 pr

where, Qs is the quantity supplied, p is the price of the good, pr is the price of a good using the same
raw material.

A) When the price of the substitute is 3, price of the complement is 2, income is 10, and pr is 2, then
what will be perfectly competitive equilibrium price and quantity of the good?
(2 points)
End-term Examination – Spring’2023 Page 4
B) At this equilibrium what is the elasticity of demand and what is the elasticity of supply?
(2+2 = 4 points)
C) If the price of the substitute good increases to 5, then what will be the new equilibrium price and
quantity?
(2 points)

D) If instead of a higher price of the substitute good (that means price of the substitute is still 3), pr
increases to 4 then what will be the new equilibrium price and quantity?
(2 points)

End-term Examination – Spring’2023 Page 5