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# final - 3835 Semester 2 2009 Page 1 of 9 CONFIDENTIAL...

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3835 Semester 2 2009 Page 1 of 9 CONFIDENTIAL Surname: First Names: Student ID No: Seat No: The University of Sydney Faculty of Economics and Business Industrial Organisation ECOS 3005 November 2009 Time allowed: 2 hours Reading time: 10 mins Instructions : 1. This examination consists of two parts, and is worth a total of 60 marks. Part A is worth 15 marks. Part B is worth 45 marks. 2. Answer all 15 multiple choice questions in part A on the computer cards provided. Unanswered, incorrect or multiple answers are given a mark of zero. 3. Answer 3 of 4 questions in part B in the booklets provided. 4. Please begin each question on a separate page. 5. Non-programmable calculators are permitted. 6. Do not remove this examination paper from the room. Good luck! 1

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3835 Semester 2 2009 Page 2 of 9 Part A (total 15 marks) Instructions : Answer all 15 multiple choice questions on the answer sheet provided. Each multiple choice question is worth 1 mark. The next 3 questions relate to the following information. Firm U is the (upstream) manufacturer of Good A. Firm D is the (downstream) retailer of Good A. Both firms are monopolists. Market demand is given by Q = 200 - P D , where Q is market quantity and P D is the price set by Firm D. Firm U has costs given by C U ( Q ) = 40 Q . Firm D has costs given by C D ( Q ) = 20 Q . Firm U charges Firm D a price of P U for the good. The timing of the game is as follows: first, Firm U chooses the price P U ; then, Firm D chooses the price P D . 1. The reaction function for Firm D is: (a) P D = 80 + P U / 2. (b) P D = 80 - P U / 2. (c) P D = 100 + P U / 2. (d) P D = 110 + P U / 2. (e) None of the above. 2. The (subgame perfect) Nash equilibrium price of Firm U, P U , is: 3. The (subgame perfect) Nash equilibrium price of Firm D, P D , is: 2
3835 Semester 2 2009 Page 3 of 9 The next 3 questions relate to the following information. Brian wants to buy Sarah’s car. Sarah likes her car, but is tempted to sell it. The current quality of Sarah’s car is t . Sarah knows t , but Brian does not. All Brian knows is that t is somewhere between 0 and 10 , 000, with each value equally likely. Brian’s dollar valuation of the car is θ B t . Sarah’s dollar valuation is θ S t . θ B and θ S are known to both Brian and Sarah. 4. To maximise his expected payoff, Brian should:

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