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Unformatted text preview: BSc IISec B Microeconomics Spring 2010 Quiz 3B Lahore School of Economics Microeconomics II BSc 2 – Section B Quiz 3B – Total Points: 43 Suggested Solutions; if there are any queries or problems, let me know. A market structure in which there is one large firm that has a major share of the market and many smaller firms supplying the remainder of the market is called: a. the Stackelberg Model. b. the kinked demand curve model. c. the dominant firm model. d. the Cournot model. e. the Bertrand model. Scenario 3: Suppose a stream is discovered whose water has remarkable healing powers. You decide to bottle the liquid and sell it. The market demand curve is linear and is given as follows: P = 30  Q The marginal cost to produce this new drink is $3. Refer to Scenario 3. What price would this new drink sell for if it sold in a competitive market? a. b. $3 c. $13.50 d. $16.50 e. $27 1  BSc IISec B Microeconomics Spring 2010 Quiz 3B Refer to Scenario 3. What is the monopoly price of this new drink? a. b. $3 c. $13.50 d. $16.50 e. $27 Scenario 4: Suppose an individual is considering an investment in which there are exactly three possible outcomes, whose probabilities and payoffs are given below: Outcome Probability Payoffs A .3 $100 B ? 50 C .2 ? The expected value of the investment is $25. Although all the information is correct, information is missing Refer to Scenario 4. What is the payoff of outcome C? 2  BSc IISec B Microeconomics Spring 2010 Quiz 3B a.150 b. c. 25 d. 100 e. 150 Refer to Scenario 4. What is the variance of the investment? a.75 b. 275 c. 3,150 d. 4,637.50 e. 8,125 John Brown's utility of income function is U = log(I+1), where I represents income. From this information you can say that a. John Brown is risk neutral. b. John Brown is risk loving. c. John Brown is risk averse. d. we need more information before we can determine John Brown's preference for risk. Dante has two possible routes to travel on a business trip. One is more direct but more exhausting, taking one day but with a probability of business success of 1/4. The second takes three days, but has a probability of success of 2/3. If the value of Dante's time is $1000/ day, the value of the business success is $12,000, and Dante is risk neutral, a. it doesn't matter which path he takes, because he doesn't consider risk. b. he should take the 1day trip, because he doesn't consider risk....
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 Spring '11
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 Economics, Microeconomics, John Brown, MICROECONOMICS SPRING

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