Sample Final Examination Paper.pdf

Sample Final Examination Paper.pdf - MicroeconomicTheory...

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Page 1 of 8 Microeconomic Theory Sample Final Examination Paper (Used in 2012) NOTE: The structure of this semester’s Final Examination Paper will be different. Refer to Blackboard Announcement
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Page 2 of 8 PART A Answer ALL THREE QUESTIONS. Show your step by step workings clearly. 1. OLIGOPOLY (20 Marks) Suppose that Australia has two providers of fixed line telephone communication. You have been asked to analyze different hypothetical situations or scenarios. The following information is available to you: Demand: ݌ ൌ 140 െ 10ܻ , ܻ ൌݕ ൅ݕ Firm 1 Cost Function: ܥ ൌ 20ݕ Firm 2 Cost Function: ܥ ൌ 20ݕ (Units: ݌ : Cents per minute; ܻ ଵ,ଶ : Millions of minutes per day; ߨ ଵ,ଶ ,݌ݕ ଵ,ଶ ଵ,ଶ : Millions of cents per day) With this information, you have estimated the following hypothetical scenarios: To complete your analysis, proceed as follows: (a) (6 marks) Define in your own words each of the alternative equilibrium situations represented in the above picture. (b) (8 marks) To complete your overview of the different scenarios, fill in the following table: 0 ݕ Cartel Equilibrium Bertrand’s Price Competition Equilibrium 6 12 12 6 3 3 Firm 1 is a monopolist Firm 2 is a monopolist ݕ Cournot’s Equilibrium Stackelberg’s Equilibrium 4 4
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Page 3 of 8 Bertrand Price Competition Monopoly by Firm 1 Cartel Cournot Simultaneous quantity decisions Stackelberg Leader/Follower quantity decisions ݕ ݕ Total ܻ ݌ ߨ ߨ Total ߨ (1) DWL (2) CS (3) PS Total (1)+(2)+(3) Notation: DWL: Deadweight losses; CS: Consumers’ Surplus; PS: Producers’ Surplus (Firm 1 + Firm 2). (c) (6 marks) Empirical observations suggest that price competition provides the best description of how this market operates. After learning this, government authorities became concerned about the possibility of a cartel and ask you to include a special section in your report. Using a game theory matrix, compare a price war situation with the cartel situation based on the information provided above. Identify the possible strategies and risks associated with this structure. 2. PUBLIC GOODS (20 Marks) Family 1 and Family 2 live in a rural area in the southwest of Western Australia. Their houses are close to the beach which is a public domain. Both families would like to have a shark contention net so that their children can play in the beach. The cost of the net is $ 2,000 . Each family has savings of $ 10,000 . Their utility functions are given by ܷ ൌ2ݔ ൅ 6,000݃ and ܷ ൅ 6,000݃ , where ݃ ଵ,ଶ takes on the value 1 if the net is installed and 0 otherwise, and ݔ ଵ,ଶ represents the amount of money available to be spent in goods other than the net. Given this information: (a)
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