101_Sample_Final_Q_A_05 - Economics 101 Sample Final...

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Economics 101 Sample Final Examination QUESTIONS 1-2 REFER TO THE DIAGRAM BELOW. $ D 60 MC 40 30 20 60 20 30 Quantity 15 45 15 1. Relative to the consumer surplus that would result at the socially optimal quantity and price, how much consumer surplus is lost from Kevin selling at the monopolist’s profit-maximizing quantity and price? a. $450 b. $250 c. $125 d. $0 e. None of the above. Answer: b. At the socially optimal quantity and price, consumer surplus would be the sum of the two shaded areas, or $450. At the monopoly price, consumer surplus is the area of the shaded triangle, or $200. The difference is $250. 60 40 20 30 60 MC $ Q D 20 30 2. What amount of total surplus would result if Kevin could act as a perfectly price discriminating monopolist? a. $900 b. $200 c. $450 d. $0 e. None of the above. Answer: a, since total surplus would be the area of the shaded triangle below. 3. Consider the diagram below. Player 1 makes his/her decision at A and player 2 makes his/her decision at B or C depending on what player one decided. If the payoffs for each are as shown, what is the equilibrium of this game? (U is Up and D is Down) 100 for 1 105 for 2 -50 for 1 155 for 2 150 for 1 200 for 2 500 for 1 -5 for 2 C B A Up Down U D U D a. 1 goes Up, 2 goes Down. b. 1 goes Up, 2 goes Up. c. 1 goes Down, 2 goes Up. d. 1 goes Down, 2 goes Down. e. There is no equilibrium. Answer: c. When player 1 looks at the game from player 2’s point of view, he realizes that if he chooses up at A, player 2 will then choose down at B, resulting in –50 for 1. But if 1 chooses down at A, he knows that 2 will choose up at C, resulting in 150 for 1. 4. Richard and Charlotte are prospectors for gold. If they search in different locations, they will both be rewarded with plentiful discoveries. However, if they both go to the same location, they will have to share the gold there. Without communicating with one another, they must decide simultaneously between locations A or house B. If their payoff matrix is as given below, which of the following statements is true? Charlotte Go to A Go to B Richard Go to A 3 for Richard 3 for Charlotte 8 for Richard 4 for Charlotte Go to B 4 for Richard 6 for Charlotte 2 for Richard 2 for Charlotte a. The only Nash equilibrium of this game is that both go to A. b. The only Nash equilibrium of this game is that Richard goes to B and Charlotte to A. c. The only Nash equilibrium of this game is that Richard goes to A and Charlotte to B. d. This game has no Nash equilibrium. 60 40 MC $ Q D 20
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e. This game has more than one Nash equilibrium. Answer: e. A Nash equilibrium is any combination of choices such that each player’s choice is best, given the choice of the other. The upper right and lower left cells satisfy that condition. 5. If Charlotte and Richard could negotiate costlessly with one another before deciding, which combination would they choose?
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101_Sample_Final_Q_A_05 - Economics 101 Sample Final...

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