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Unformatted text preview: 1 OLD SHORT ANSWER EXAM QUESTIONS Questions appear in the chronological order in which they were given. However, after the number of each question, the topic number and name from the current course outline is also listed. Use these category names to decide which questions to study for each test, NOT the test number on which the question originally appeared, since the order of topics has been changed. A key for all questions is included at the end. As always, if you spot any problems, let us know! 2 SUMMER 2006 EXAM 1 Name__________________________________ UFID#__________________ SHORT ANSWER 1. (15 Points) * 2. GAME THEORY* Dan hires Amy for one year, and one year only. If Amy works hard, Dan’s payoff is \$200 and Amy’s is \$100. If Amy shirks, Dan’s payoff is \$50 and Amy’s is \$150. After the year is over, Dan can punish Amy if she shirks by going out of his way to make sure she has a hard time finding other work that pays well. Inflicting this punishment costs Dan \$50 and costs Amy \$200. The costs of punishment are in addition to other payoffs. A) Draw the extensive form (game tree) for this one shot game. (6 points) B) What is the sub-game perfect Nash equilibrium (spne) of this game if it is played once, there is complete information, and everyone is rational, and, why is this the most reasonable outcome of this game under these circumstances? (Two to four concise sentences.) (5 points) ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ C) Now suppose Dan will have to hire a manager every year and there is some chance Dan is the kind of person who will always punish a shirking manager, no matter what. How likely must Amy think it is that Dan will punish her for shirking to induce her to work hard? Show your work. (4 points) 3 SUMMER 2006 EXAM 1 Name__________________________________ UFID#__________________ SHORT ANSWER 2 (10 Points) * 5. HOMOGENOUS PRODUCT INDUSTRIES* Jennifer and Lindsay are the only two producers of widgets – a completely homogenous product, and engage in quantity competition. The inverse demand for widgets is given by 20 .5 p Q =- . Lindsay’s constant marginal cost is 5. Lindsay moves first. She knows Jennifer’s reaction function is 10 .5 J L q q =- . A) Write Lindsay’s profit function in the first period of the two stage game. (5 points) B) Write the condition for maximizing Lindsay’s profit. (3 points) C) Solve for Lindsay’s optimal quantity. Label your solution clearly. (2 points) 4 SUMMER 2006 EXAM 1 Name__________________________________ UFID#__________________ SHORT ANSWER 3 (15 points) * 6. DIFFERENTIATED PRODUCT INDUSTRIES* Ryan and Charles produce slightly differentiated gadgets. The demand for Ryan’s gadgets is Ryan and Charles produce slightly differentiated gadgets....
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