ARE 100B - Midterm 2 Key, version B

# ARE 100B - Midterm 2 Key, version B - ARE 100b M Whitney...

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ARE 100b M. Whitney Spring 2009 YOURNAME: ____________________________________ _ SECOND MIDTERM This exam has two sections. Section A consists of 10 multiple-choice questions, each worth 10 points .. Total possible points in Section A = 100. Section B consists of 5 problems each worth 30 points. Partial credit is given for correct approach even if final answer is incorrect, so show your work! Total possible points in Section B = 150. Total points in this exam: 250

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SECTION A Multiple choice--1 0 points each 1. Suppose two firms, A and B, have formed a cartel. Their cost functions are: TCa = 10 qa + .1 qa"2 TCb = 14 qb + .05 qb"2 If you observe that firm B is producing 50 units, what else do you expect is true? a Price is \$19. @FirmA'sATC is \$14.50. c. Firm B's ATC is \$19. d. All of the above. e. None of the above. 2. Three prospective bidders attend an American or English-style auction. Their reservation prices are. Buyer A= \$200; Buyer B= \$180; Buyer C = \$175. The bidding increment is \$5. What is the likely outcome? a Buyer A will win the bid and pay \$185 b. Buyer A will win the bid and pay \$180. (£) Either a or b. d. Not enough information to tell, since bidders have an incentive to hide their true reservation prices. I 3. Suppose we observe a firm selling a good at P < MC. What market behavior is consistent with this practice? a. Predatory pricing. b. Ex ante competition, ex post monopoly. @ Either a or b. d. Neither a nor b. Questions 4 and 5 refer to the payoff matrix below: Player 2 Player 1 (8, 10) (4,3) (7, 1) (3,2) (-4,6) (6, 7) (7,-5) (8,6) (5,3) 4. Which, if any, player has a dominant strategy in this game? a. Player 1 b. Player 2 c. Both players @Neither player 5. How many Nash equilibria in pure strategies exist in this matrix? a None b.One c. Two @)Three
6. What is the difference between market price under (i) Bertrand oligopoly, and (ii) perfect competition? Assume all ftnns produce homogeneous (not differentiated) goods. a. There is no difference. Price under Bertrand oligopoly equals the competitive price, in the

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ARE 100B - Midterm 2 Key, version B - ARE 100b M Whitney...

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