MSQE-PEB-2018.pdf - There are 6 questions 2 in Group A 2 in Group B and 2 in Group C Answer 4 questions in total and at least 1 question from each Group

MSQE-PEB-2018.pdf - There are 6 questions 2 in Group A 2 in...

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° There are 6 questions: 2 in Group A, 2 in Group B, and 2 in Group C. ° Answer 4 questions in total and at least 1 question from each Group. ° Each question carries equal marks. ° The maximum possible score is 100 . Group A 1. Suppose a government agency has a monopoly in the provision of internet connections.The marginal cost of providing internet connections is12, whereas the inverse demandfunction is given by:p= 1±q. The o¢ cial charge per connection is set at0; thus,the state provides a subsidy of12per connection. However, the state can only providebudgetary support for the supply of0:4units, which it raises through taxes on con-sumers.Bureaucrats in charge of sanctioning internet connections are in a positionto ask for bribes, and consumers are willing to pay them in order to get connections.Bureaucrats cannot, however, increase supply beyond0:4units.(a) Find the equilibrium bribe rate per connection and the social surplus.(b) Now suppose the government agency is privatized and the market is deregulated;however, due large °xed costs of entry relative to demand, the privatized companycontinues to maintain its monopoly. Find the new equilibrium price, bribe rateand social surplus, specifying whether privatization increases or reduces them.(c) Suppose now a technological innovation becomes available to the privatized monopoly,which reduces its marginal cost of providing an internet connection toc,0< c <12.Find the range of values ofcfor which privatization increases consumers±surplus.2. Consider an exchange economy consisting of two individuals
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  • Spring '16
  • Smita Gaurea

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