ECON
final1_key_301_f99

# Intermediate Microeconomics: A Modern Approach, Seventh Edition

• Homework Help
• PresidentHackerCaribou10582
• 4

This preview shows pages 1–4. Sign up to view the full content.

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

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

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

Unformatted text preview: Suggested Solution to Final Exam A for ECON 301 Jennifer Wissink Cornell University PartI 1. P=-1/2X+150, Pxx=-1/2X2+150X9 MR=-X+150 TC=10+V2X19MC=X from proﬁt maximizing condition MC = MR, x = - X+ 150 9 x* = 75 P=—1/2x+150 9P"'=112.5 n= I dx/dpxp/x I = I-2 x112.5+75 I = 3, thus demand is elastic. 2. ( long-run totalcost function) Min 6K +7 2L s.t. Min (2K, 2L) = x fromconstraint,2K= 2L = x 9 K=1/2 X, L=1/2X Thus, C=6 x1/2X+ 2x1/2x:> C=4 X ( short-run total cost function ) Min 6x8 + 2L s.t. Min (16, 2L) = x . from constraint, 2L = X 9 L = 1/2 x, 0 S X S 16 Thus, C=48+ 2 x1/2X:> C=48+x,(0\$xs16) 3. (DMRS Abe = MRS Betty, 4. MinC1+C2 =Mi112x12+90+6x22 +40 5.1: X1 + X2: 36 - by plugging constraint into objective function, Min 2X12 + 90 + 6(36 — )(1)2+ 40 then FOC is 4 x1 —12(36— x1) = ‘0 9 x:* = 27, x2*= 9 5. Disagree Income increase 9 demand curve shifts to right (D—>D’)-) price increase (Po—+P1)9 new private ﬁrms enter 9 short-run supply curve shifts to right(SSu~>'SS’) 9 price decrease (P.—>P0) 9 new equilibrium (QB—>Q.). There is only change of short-run supply curve, because long—run supply curve is I horrizontal in competitive market. 18 Part II 1. a. (.1) Reaction function for ﬁrm 1 Px x1 =20x1 —x;2 —x1x2* -) MR=20 —2x1 —-X2*, MC=8 from MC=MR, 20 — 2X1 ~ X2* = 8 @(2) Reaction function for firm 2‘ PxX2=20X2—X22 —x1*x2 —) MR=20d2x2—x1*, MC= 2 from MC=MR, 20 — '2x2 — x1* = 2 from (1) and (2), X? = 2, x2*= 8, x=*= 10 P = 20 — X" = 10 then, “1* = 10x2 —8><2 = 4, “22* = 10x8 — 2x8 = 64, in?” = 4+64 = 68 ‘ b. Since MC of ﬁrm 2 is lower than that of firm 1, we don’t have to produce in firm 1. P=20—X2,PxX2=20X2—-X229MR=20—-2X2, ' fromMR=MC,20—2x2 = 2 9 x? = 9, Xg” =0, X*= 9 P = 20 n X* = 11 then, in“ = 0, Iliz" =11><9 ~2><9 = 81, it" = 0+81 = 81 To maintain cartel, firm 2 has to subsidize firm 1 some money(M*). "‘ 4 < M" < 17 c. Like part b, we don’t have to produce in firm 1, because MC of ﬁrm 2 is lower than that of firm 1 Competitive solution means MC = P 9. P* = 2 from P = 20 —X2, Xi" = 18, Xﬁ '-= 0, X*= 18 then,m* = 0, It? = 2x18 — 2x18 = 0, 1t* = 0 19 . a mg mo Not Develop 0, 100 b. There is no dominant strategy equilibria to this game. Boeing's best response is if Airbus chooses develop 9 Choose “not develop” if Airbus chooses not develop -) choose "develop" Airbus’ best response is if Boeing chooses develop-7" choose “not. develop" if Boeing chooses not develop -) choose “develop” c. (Boeing, Airbus) =I (Develop, Not Develop), (Not Develop, Develop) d. dominant strategy : none for Boeing, Develop for Airbus Nash equilibria : (Boeing, Airbus) = (Not Develop, Develop) 'e. If there is no subsidy, Airbus never chooses develop strategy if Boeing develops. By the subsidy, Airbus always chooses develoP strategy regardless of Boeing’s strategy. Also, Europe never pays the subsidy, because the equilibrium is now Airbus develops and Boeing doesn’t. f. (Boeing, Airbus) = (Develop, Not Develop) Because Boeing moves first, Boeing gets 100, compared to the Nash equilibrium With its "not develop” strategy. .a. < Abe > ' < Betty > utility increase uIih'ty increase Clothing Clothing 20 b, c. d. 100 4—— Betty‘s food 0 B clothi . 5 Initial endowment 0A 100 Abe’s food 21 ...
View Full Document

• Summer '07
• WISSINK

{[ snackBarMessage ]}

### What students are saying

• 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.

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

• 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.

Dana University of Pennsylvania ‘17, Course Hero Intern

• 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.

Jill Tulane University ‘16, Course Hero Intern