UNIVERSITY OF MALAYA
EXAMINATION FOR THE DEGREE OF MASTER OF ECONOMICS
ACADEMIC SESSION 2015/2016 SEMESTER II EXGA6120: Advanced Microeconomics
June 2016 Time: 3 hours INSTRUCTIONS TO CANDIDATES:
This exam paper consists of two parts: Part A and Part B
Answer two (2) questions from part A and all questions from part B. (This question paper consists of 4 questions on 3 printed pages) EXGA6120
PART A 1. Give some examples of joint production where you would expect to see
economies of scale, no economies of scale, and diseconomies of scale in the
industry. Explain how these 3 concepts are related to production, cost minimization
and profit minimization behavi'or of the firms. (30 marks)
2. Explain the role and limitation of duality theory in comparative statics approach.
Discuss the following terms as they apply to duality theory based on the specific
model of your choice.
a. Envelope theorem
b. Hotelling's Lemma
c. Shepard's lemma
d. Roy's identity
e. Young' theorem
f. Homogenous and Homothetic Function
(30 marks)
3. Describe how the various property right based on Coase theorem be used to
address the problem of externality. How will the transaction cost affect the
bargaining behavior of the firms?
(30 marks)
PARTB 4. (a) There are two firms in a market. Firm 1 is the "leader" and picks its quantity
first. Firm 2, the "follower", observes firm 1's choice and then chooses its
quantity. Profits for each firm i given by quantity choices q1 and q2 are
p(q1+q2)qi - cq,, where p'(q) + p"(q) < 0 at all q 0. Show that firm 1's quantity
choice is larger than its quantity choice would be if the firms chose quantities
simultaneously and that its profits are larger as well.
(14 marks) 2/3 EXGA6120
(b) Consider the following game played between a boss (B) and an employee (E).
The boss offers a wage, w c:: 0 . After observing the wage offer, the employee decides
how much effort, e 0, to expend. The payoff functions for the boss and the
employee are (a is a constant):
u8 (w, e) = 2../e- w =
u E( w, e) w i)
ii) e2 2 + awe What is the optimal effort for the employee, as function of w?
What is the subgame perfect equilibrium choices of w and e, as function
of a?
(10 marks) (c) There are two goods (quantities x and y) and two people (A and B) in the
economy. A owns eight units of the x-good and none of the y-good. B owns none of
the x-good, and three units of the y-good. Their preferences are described by the
utility functions
and u8 (xe,ya) = ya + logxs Determine both consumers' demand functions and the market demand function, and
the competitive {Walrasian) equilibrium price(s) and allocation(s).
(16 marks) END

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