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2004finalpsoln - T = 80(d q L = 20 p L = $40 and q H = 50...

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2004 Final Examination - Partial Answers 1. PART B: 1. option pricing (a) C 1 = 0 if S 1 = 30, C 1 = 0 if S 1 = 54, E { C 1 } = $3 (b) see notes (c) α = 1 6 , β = 5 . i.e. hold 1 6 units of the stock and sell 5 units of the bond (d) C 0 = $1 . 67 (e) β C = 8 2. Cournot (a) mc 1 = q 1 (b) R 1 ( q 2 ) : q 1 = 50 1 4 q 1 (c) q C 1 = q C 2 = 40 , P = $60 (d) C 1 ( q 1 ) = 1 2 kq 1 so that mc 1 = kq 1 , new best response function for fi rm 1 has same vertical intercept but is steeper (e) see notes 3. dominant fi rm (a) Q = 140 3 2 p for 0 p 80 and Q = 100 p for 80 p 100 (b) q r = 140 7 11 p for p 80 (c) q r = 70 , p r = $40 , q F = 10 , Q
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Unformatted text preview: T = 80 (d) q L = 20 , p L = $40 and q H = 50 and p H = $50 4. discrimination (a) { $225 , 15 } (b) { $837 . 50 , 50 } (c) for type 1 : { $1 , 177 . 78 , 50 } for type 2 : © $88 . 89 , 3 1 3 ª (d) { $11 . 11 , $23 . 33 } (e) reduces q ∗ 2 , when c ≥ 10 then q ∗ 2 = 0 PART C: 1. insurance (a) $37 , 000 (b) graph (c) graph, pre-sell boat to give $42 , 500 1...
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