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Student’s Roll No. ………………….

Subject Code: ECOA


(To be written before writing any answer)

SEMESTER II– B.SC. EXAMINATION 2009


ECONOMICS (HONOURS) - III
Full Marks: 100
Time: 4 hrs
Students should answer in their own words as far as practicable.
(Each group has to be answered on different answer scripts)
GROUP – A
MICRO ECONOMICS - II (Marks: 50)

1. Answer any five questions: (3x5=15)


(a) All firms in a competitive industry have long run total cost curves given by
LTC = q3 – 10q2 + 36q, where q is the firm’s level of output. What will be this
industry’s long run equilibrium price?
(b) Why do only variable costs matter in the determination of short run equilibrium
output of a perfectly competitive firm?
(c) Do you think that price discrimination always lowers total surplus in a market?
(d) Can you comment on the cross price elasticities of demand for the products belonging
to a product group in a monopolistically competitive framework?
(e) State clearly the conditions of short run and long run equilibria in a market
characterized by monopolistic competition. Which do you consider to be the most
important difference between the two sets of conditions?
(f) What is the nature of association between the wage setting power wage of a trade
union and the elasticity of demand for labour?

2. Answer any three questions: (5x3=15)


(a) A monopolist has a cost function given by C(Q) = Q2 and faces a demand curve given
by P = 120 – Q. Determine profit maximizing monopolist’s output and price. Can you
determine monopoly profit and consumer surplus?
(b) Does excess capacity necessarily exist in a monopolistically competitive market
which is characterized by active price competition?
(c) Are the following phenomena consistent with a perfectly competitive structure:
(i) each firm in the industry has increasing returns to scale in its production
function; (3)
(ii) government imposes lumpsum tax for long run. (2)
(d) Explain how is the magnitude of quasi-rent related to Marshall’s time-period analysis.

3. Answer any two questions: (2x10=20)


(a) Consider a perfectly competitive market when a minimum price is set. What would be
the welfare implications? If instead, the government has put in a price support
programme, would the results differ?

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(b) (i) Can you think of a market structure that allows super-normal profit in the long
run? (2)
(ii) Can MC intersect MR in the inelastic region of the monopolist’s demand curve?
Argue in favour of your answer. (4)
(iii) A monopolist operates two plants with the following cost functions:
C1(Q1) = 10Q12, C2(Q2) = 20Q22. If the inverse demand function is P = 700 – 5Q, then
determine the output level produced in each plant and the market price.(4)
(c) Does a simple monopolist offer greater level of employment than competitive firms
when labour is the only factor of production and workers compete among themselves
for work? Explain.

GROUP – B
MACRO ECONOMICS - II (Marks: 50)

1. Answer any five questions: (5x3=15)


(a) What could be the shape of the AD schedule in times of ‘depression’?
(b) When is fiscal policy fully ineffective? Explain in terms of IS-LM framework.
(c) How does money illusion affect the slope of the short run aggregate supply curve?
(d) Define ‘natural rate of unemployment’ in the context of the difference between
macroeconomic short run and long run.
(e) What do you mean by backward-looking & forward-looking expectation formations?
(f) Define ‘inflation inertia’ and briefly discuss its implications.

2. Answer any three questions: (3x5=15)


(a) How would you explain unemployment in terms of any one variant of the efficiency
wage hypothesis?
(b) Analyse the impact of a monetary expansion on output and price if the economy is
under the liquidity trap, given that the aggregate supply curve is perfectly elastic.
(c) Distinguish clearly between Adaptive Expectation Hypothesis & Rational Expectation
Hypothesis.
(d) Can the wage-price spiral originating from an adverse supply-shock be mitigated with
accommodating policies? Explain clearly.

3. Answer any two questions: (2x10=20)


(a) (i) Derive the aggregate supply function using the sticky price model. (6)
(ii) Derive the expectation-augmented Phillips relation from the aggregate supply
function derived above. (4)
(b) Clearly explain the impacts on aggregate output, employment and general price level
in short & long-run with the help of AD and the expectation augmented AS schedules
under adaptive expectations, if the government wants to maintain consistently higher
levels of output & employment compared to the ‘natural rates’.
(c) Explain the concept of sacrifice ratio and evaluate its significance under rational
expectation.

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