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Mathematical/Quantitative methods in Economics
Q1. (2022, 7+10+8 marks, 300 words)
A) What is the Leontief inverse matrix? What are the mathematical properties of it?
B) State and prove graphically the Hawkins-Simon condition in case of 2 x 2 industries
in the static open input-output model. Give an economic interpretation of it.
C) Consider the Leontief input coefficient matrix:
𝟎. 𝟏 𝟎. 𝟐 𝟎. 𝟐
A= 𝟎. 𝟐 𝟎. 𝟒 𝟎. 𝟏
𝟎. 𝟑 𝟎. 𝟏 𝟎. 𝟔
I. Test the viability condition of the system.
II. Test the properties of Leontief inverse.
Answer:
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Q2. 2021, 8+10 marks-200 words)
A) Given the technology matrix
And final demands are F1, F2 and F3.
Find the output levels if F1=20, F2=0 and F3=100
Answer:
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B) Fit a second degree polynomial to the following data:
Answer:
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Q3) A local business firm is planning to advertise a special sale on radio and television. Its
weekly advertising budget is 16,000. A radio commercial costs 800 per 30-second slot
while a television commercial costs 4,000 per 30-second slot. Radio slots cannot be bought
less than 6 in number while TV slots available are at the most 4 per week. Given that a TV
slot is 6 times as effective as a radio slot in reaching consumers, how should the firm
allocate its advertising budget to attract the largest number of them? How will the
optimal solution be affected if the availability of the television slots is no longer
constrained? (2021, 10+15 marks-300 words)
I. Formulate LPP model
II. Solve the above using graphical method
Answer:
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Q4. (2020)
a) an economy produces only coal and steel. The two commodities serve as intermediate
inputs in each other’s production. 0.4 tonne of steel and 0.7 tonne of coal are needed
to produce a tonne of steel. Similarly, 0.1 tonne of steel and 0.6 tonne of coal are
required to produce a tonne of coal. No capital inputs are needed. 2 and 5 labour days
are required to produce a tonne of coal and steel respectively. If the economy needs
100 tonnes of coal and 50 tonnes of steel,
i. Calculate the gross output of the two commodities and the total labor
required.
ii. Write down technology matrix.
iii. Do you think that the system is viable?
iv. Determine the equilibrium prices if the wage rate is rs.10 per man day.
b. Mohan is paid rs.8 if two coins turn both heads and rs.1 if two coins turn both tails.
Ram is paid rs.3 when two coins don’t match.
i. write down the pay-off matrix of the above problem.
ii. Whom do you consider in a better position?
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Q5. Suppose that the Leontief input-output coefficient matrix is
A = 0.1 0.4
0.2 0.5
𝟏
and the final demand vector is ( )
𝟏
Find the total direct and indirect requirement of the second input to satisfy the final
demand. (2019)
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Q6. A firm is producing two goods A and B. It has two factories that jointly produce the
two goods in the following quantities (per hour):
Factory 1 Factory 2
Good A 10 20
Good B 25 25
The firm receives an order for 300 units of A and 500 units of B. The costs of operating the
two factories are 10,000 and 8,000 per hour. Formulate the linear programming problem
of minimizing the total cost of meeting this order. Also, find the minimum cost. (2019)
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Q7. Consider the optimisation problem: (2018)
Maximize u(x1,x2)
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Subject to M = p1x1 + p2x2
Where, M, p1 and p2 are positive constants.
Write down the Lagrangian for this problem and explain why you need to assume that an
interior solution exists before using Lagrangian method to solve the problem.
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The solution we should get for our utility maximization problems, we need our budget
exhaustion, MRS = price ratio that is psychic trade off=market trade off.
Show the second characteristic can be fulfilled only when we have an interior solution
because at corner points MRS can be different from price ratios as consumer has strong
preference towards one good. Therefore while maximizing utility, an interior solution is
going to exist.
Solving through Lagrange method
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Q8. Assume that there are three sectors. The input coefficient matrix A and the final
demand vector d is given as follows:
𝟎. 𝟑 𝟎. 𝟒 𝟎. 𝟐 𝟏𝟎𝟎
A = *𝟎. 𝟐 𝟎 𝟎. 𝟓, and d = * 𝟑𝟎 ,
𝟎. 𝟏 𝟎. 𝟑 𝟎. 𝟏 𝟑𝟎
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Would the amount of the primary input required be consistent with what is
available in the economy? (2018)
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