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Exam 1 - Mock - barley both sell for $1 and income is $20...

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P RACTICE Q UESTIONS FOR E XAM #1 1) Suppose the market for potatoes can be expressed as follows: Supply: Q S = 20 + 10p Demand: Q D = 400 20p Solve for the equilibrium price and quantity. 2) Suppose there are 1000 identical wheat farmers. For each, Total Cost TC = 10 + q 2 . (a) Derive the short-run market supply curve. If the market demand is Q = 600,000 100p. (b) Derive the short-run equilibrium Q, q, and p. (c) Does the typical firm earn a short-run profit? Figure 1 3) Figure 1 shows the long-run cost curves for a typical firm in a competitive market. If the number of firms is unrestricted and input costs are constant, derive the long-run market supply curve. 4) Suppose a price taking firm has the following total cost function TC = 100 + 2q 2 . If price equals $20, what is the firm’s output decision? What are its short-run profits? 5) Assume the market demand for wheat may be written as Q = 45 2p + 0.3Y + 1pb where Y refers to income and pb refers to the price of barley. Assuming that wheat and
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Unformatted text preview: barley both sell for $1, and income is $20, calculate demand elasticity for wheat. 6) Suppose the demand for pizza in a small isolated town is p = 10 – Q. There are only two firms, A and B, and each has a cost function TC = 2 + q. Determine the Cournot equilibrium. Determine the equilibrium quantities of each if firm A is the Stackelberg leader. 7) Suppose two firms, A and B, are simultaneously considering entry into a new market. If neither enters, both earn zero. If both enter, they both lose 100. If one firm enters, it gains 50 while the other earns zero. Set up the payoff matrix for this game and determine if any pure Nash equilibria exist. Can you predict the outcome? Figure 2 8) Figure 2 shows the payoff for two firms, A and B, that must each choose to produce either an advanced computer or a basic computer. Determine the dominant strategies for each firm (if any) and the Nash equilibria (if any)....
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