QUESTION ONE a) Explain Pareto efficiency. [4 MARKS] b). Using the production possibility frontier and Edgeworth box (with appropriate endowments and assumptions) show and explain in detail how a competitive equilibrium achieves an effcient product mix. [10 MARKS] c) Explain the difference between efficiency and equity. Explicate the role of the government in enhancing efficiency and equity. [6 MARKS] QUESTION TWO Suppose there are two local airlines, Africa World Airlines (firm A) and Starbow (firm B), flying passengers from Acera to Tamale and back on daily basis. The profit maximising condition of the firms is based on conjectural variation in prices. The Demand functions for the two firms are given below as: QA = 60 - 2PA + Pg and QB = 60 - 2P8 + PA Where, QA and Q8 are the outputs for firms A and B respectively. While, PA and Pg are respective prices for firms A and B. The marginal costs of the firms are estimated to be equal to zero. a) Derive and plot the reaction functions for the firms, showing the point of equilibrium. [6 MARKS] b) Find the price of firm A and firm B. [6 MARKS] c) Determine the profit maximising output of each firm. [4 MARKS] a) Estimate the profit of each firm. [4 MARKS] QUESTION ONE a) Explain Pareto efficiency. [4 MARKS] b). Using the production possibility frontier and Edgeworth box (with appropriate endowments and assumptions) show and explain in detail how a competitive equilibrium achieves an effcient product mix. [10 MARKS] c) Explain the difference between efficiency and equity. Explicate the role of the government in enhancing efficiency and equity. [6 MARKS] QUESTION TWO Suppose there are two local airlines, Africa World Airlines (firm A) and Starbow (firm B), flying passengers from Acera to Tamale and back on daily basis. The profit maximising condition of the firms is based on conjectural variation in prices. The Demand functions for the two firms are given below as: QA = 60 - 2PA + Pg and QB = 60 - 2P8 + PA Where, QA and Q8 are the outputs for firms A and B respectively. While, PA and Pg are respective prices for firms A and B. The marginal costs of the firms are estimated to be equal to zero. a) Derive and plot the reaction functions for the firms, showing the point of equilibrium. [6 MARKS] b) Find the price of firm A and firm B. [6 MARKS] c) Determine the profit maximising output of each firm. [4 MARKS] a) Estimate the profit of each firm. [4 MARKS]