PAM 200 Final Key Pointers

PAM 200 Final Key Pointers - I.Basics of budget constraints...

Info icon This preview shows pages 1–2. Sign up to view the full content.

I.Basics of budget constraints and Indifference curves c. How to solve mathematically for initial and final optimal points Income = PxX + PyY Px/Py = MUx/MUy From first equation you get Y (get y on one side) and plug it into second d. Solve for income and substitution effects Equivalent and compensating variation versus consumer surplus How much willing to maintain price, how much willing to pay for cheaper price e. Be able to analyze diagrammatically basic applications In-kind transfers II. Edgeworth Box Review IV. Time value of money d. The theory of the mine: X. Applications of game theory to duopoly a. Bertrand equilibrium; Price competition down to P=MC w. zero profits b. Cartel solution; Decide to work together to avoid Bertrand but prisoner dilemma arrises c. Cournot equilibrium; in the nash cournot model; firms see other firm productions and select their own output levels. They incorrectly assume the other firm wont adjust output in
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: response. By analyzing lets say the equation is P= 120- Q so MR is 120 – 2q, and firm A is producing 60 therefore the new firm B will produce P = 120 – (60 + 2Q), so in order to maximize revenue B produces 30 Then because b is at 30, a does 45, then A and B continuously change till the equilibrium is at A=B which is at 40, to verify this we plug 40 into each RF and price is 40 dollars, total profits 3200; two firms would have been better off if they split the 3600 `d. Stackelberg equilibrium; which firm is more brave and doesn’t want to change; similar to the game of chicken, when you realize that cournot will happen if another firm happens and one firm holds price and hopes the other firm wont change it For normal goods, Compensating Variation, <CS, <Equivalent Variation For inferior goods Equivalent < CS < Compensating Compensating is steeper than ordinary if its normale...
View Full Document

  • Fall '07
  • EVANS,T.
  • Game Theory, substitution effects Equivalent, final optimal points

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern