Exam 4 Ec302, secs 7 and 13. Rashid. Part 1.
You may answer as many questions as you wish in either Part 1 or Part 2 but your total
cannot exceed 50. (There are about 15 bonus questions in case you missed a topic, or
there is ambiguity in the question etc)
No calculators allowed
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____
1.
Suppose that the duopolists Carl and Simon face a demand function for pumpkins of
Q
= 16,800 – 800P,
where
Q
is the total number of pumpkins that reach the market and
P
is the price of pumpkins. Suppose fur
ther that each farmer has a constant marginal cost of $1 for each pumpkin produced. If Carl believes that Si
mon is going to produce
Q
s
pumpkins this year, then the reaction function tells us how many pumpkins Carl
should produce in order to maximize his profits. Carl’s reaction function is
R
C
(
Q
s
) =
a.
16,800 – 800
Q
s
.
b.
8,000 –
.
c.
16,800 – 1,600
Q
s
.
d.
4,000 –
.
e.
12,000 –
Q
s
.
____
2.
If the inverse demand for bean sprouts were given by
P
(
Y
) = 300 – 3
Y
and the total cost of producing
Y
units
for any firm were
TC
(
Y
) = 30
Y
and if the industry consisted of two Cournot duopolists, then in equilibrium
each firm’s production would be
a.
45 units.
b.
22.50 units.
c.
30 units.
d.
15 units.
e.
25 units.
____
3.
Suppose that Grinch and Grubb go into the wine business in a small country where wine is difficult to grow.
The demand for wine is given by
p
= $360 – .2
Q
, where
p
is the price and
Q
is the total quantity sold. The in
dustry consists of just the two Cournot duopolists, Grinch and Grubb. Imports are prohibited. Grinch has con
stant marginal costs of $45 and Grubb has marginal costs of $15. How much Grinch’s output in equilibrium?
____
4.
Suppose that the market demand curve for bean sprouts is given by
P
= 1,480 – 2
Q
, where
P
is the price and
Q
is total industry output. Suppose that the industry has two firms, a Stackleberg leader and a follower. Each
firm has a constant marginal cost of $80 per unit of output. In equilibrium, total output by the two firms will
be
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____
5.
A city has two major league baseball teams,
A
and
B
. The number of tickets sold by either team depends on
the price of the team’s own tickets and the price of the other team’s tickets. If team
A
charges
P
a
for its tickets
and team
B
charges P
b
for its tickets, then ticket sales, measured in hundreds of thousands per season, are 10 –
2
P
a
+
P
b
for team
A
and 5 +
P
a
– 2
P
b
for team
B
. The marginal cost of an extra spectator is zero for both
teams. Each team believes the other’s price is independent of its own choice of price, and each team sets its
own price so as to maximize its revenue. What price do they charge per ticket?
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 Fall '09
 AVRINRAD
 Game Theory, partner

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