The actuarially fair premium is defined as the expected loss for the insurance company. For insurance to be actuarially fair, the premium rate must equal
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Discuss the approaches adopted by Pigou and Pareto for analyzing the problem of
welfare economics
Envelope theorem
Explain Arrow’s Impossibility Theorem
Assume that there are four firms supplying a homogenous product. They have identical cost functions given by C(Q) =40 Q. If the demand curve for the industry is given by 100 , find the equilibrium industry output if the producers are Cournot competitors. What would be the resultant market price? What are the profits of each firm?
Consider the pay-off matrix of a game given below:
(a) Find all the Nash equilibrium of this game. Which player(s), if any, would have a
dominant strategy?
(b) Suppose that player 1 moves first by choosing either A or N. Players 2 observe
player 1’s action and then choose I or, O. For every action combination, the
4
player’s pay-offs are the same as in the above pay-off matrix. Draw a tree of this
new game. How many strategies does player 1 have and what are they? Find all the
sub-game perfect equilibria of this game.
Hidden information
What is indirect utility function? How will you derive an indirect utility function from a
direct utility function? Explain Roy’s identity?