ARE 100 465 - ARE 1003 SPRING 2008 M. Whitney NAME: MIDTERM...

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Unformatted text preview: ARE 1003 SPRING 2008 M. Whitney NAME: MIDTERM [I This exam has two sections. Section A consists of 10 multiple-choice questions, each worth 10 points. Total possible points in Section A = l00. Section B consists of 5 problems each worth 30 points. Partial credit is given for correct approach even if final answer is incorrect, so show your work! Total possible points in Section B = 150. Total points in this exam: 250 Section A 1. Suppose an industry consists of Coumot oligopolists who sell a homogenous good. Which of the following is true? <39 The market price of the good declines as the number of oligopolists in the market increases. b. Each firm believes that when it increases its output, other firms will do likewise. c. Each firm believes that when it raises its price, other firms will do likewise. d. All of the above. e. None of the above. 2. There are 3 pizzerias in Red Bluff, each selling its own differentiated brand of pizza. Bob, the manager of Bob's Pizzeria, believes that if he raises the price he charges per pizza, neither of the other 2 firms will raise their price. Bob also feels that, if he reduces his price, both rival firms will match his price decrease. If Bob is correct in his beliefs, which of the following statements is true? a. Bob's Pizzeria is viewed as a price leader by the pizza sector in Red Bluff. b. Bob's Pizzeria should price its pizza competitively, such that price equals marginal cost. © Bob's Pizzeria is likely to hold its price constant for long periods of time, even if marginal costs fluctuate. d. Bob's Pizzeria is a Stackelberg leader. e. None of the above. 3. Which of the economic models below requires that firms’ products must be differentiated? a. Stackelberg oligopoly b. Bertrand oligopoly c. Coumot oligopoly Monopolistic competition e. All of the above. 4. The Coumot quantity-setting model of oligopoly is criticized by some economists as being unrealistic, since it assumes that firms behave in a "naive" fashion. Which of the following statements best describes this "naive" behavior? a. A Coumot quantity-setter does not realize that its output affects the market price. b. A Coumot quantity-setter does not realize that its rivals’ output affects the market price. 6:) A Coumot quantity-setter does not realize that its rivals will reduce their output levels when it increases ' its output. d. A Coumot quantity-setter does not realize that its rivals will increase their output levels when it increases its output. e. A Coumot quantity-setter does not realiZe that it faces a kinked demand curve. 5. Three buyers at an English-style (American~style) auction would like to purchase an antique dresser. Their reservation prices are: ' Buyer X Rx = $250 Buyer Y Ry = $240 Buyer Z Rz = $220 Suppose the auctioneer starts the bidding at $150, and raises it by a bid increment of $5 . If the buyers behave rational] , what is the likely result? a Buyer X will definitely win the bidding. b. The table’s selling price might be $250. c. Both a and b are correct. d. Neither a nor b are correct. 6. Suppose the same three buyers from the previous problem instead visit a Dutch-style auction. As before, their reservation prices are: Buyer X Rx = $250 Buyer Y Ry = $240 Buyer Z Rz = $220 Suppose the auctioneer starts the bidding at $300, and reduces it by a bid increment of $5. If the buyers behave rationally, what is the likely result? a. Buyer X will definitely win the bidding. The table’s selling price might be $250. c. Both a and b are correct. d. Neither 3 nor b are correct. 7. and 8. Consider the payoff matrix below. 7. Does either player have a dominant strategy in the above game? a. Yes, player A does. @Yes, player B does. 0. Both players have a dominant strategy. d. Neither player has a dominant strategy. 8. How many Nash equilibria in pure strategies are there in the above game? a. Three b. Two One . None. 9. Suppose the toothpaste industry is monopolistically competitive, and that each firm’s cost of producing toothpaste is TCi = 1000 + qi + 01*in If the market is in long run equilibrium, what does this imply? a. Each firm will produce 100 units of output. b. The price per unit will be $3. _c. Each firm will produce more than 100 units of output. @The price per unit will be more than $3. e. None of the above. 10. Which of the following statements is correct about Bertrand oligopoly? a. In the long run, profits will be driven to zero. @Firms compete by undercutting each other’s prices. c. Firms engage in implicit cooperation. d. All of the above. Section B 1. Two firms behave as Coumot oligopolists in providing trash service to Jacksonville. Each firm's cost function is given below: Tcl = 2000 + 100*q1 + q,2 Tc2 = 8000 + 40*q2 + 0.25*q22 Total inverse demand for trash pickup service in Jacksonville is: P = 500 ~ Q where Q is the total number of homes receiving trash service on an annual basis. (15) a. Find the reaction functions for firm 1 and for firm 2. ,. fl. .-,., —/ /7« : l . , / Riv o f— :7 (If a?” /L/6 faggz a J w #4,:25544 ,, 7, ,7 x 0’ ,Eii;;i_._.id serve? What is the price charged for trash pickup per year? _LW [Mo- (15) b. How many customers does each oqi‘1gW i3=900~120 971x: C(f: law-rowan 2. Three supermarket chains plan to compete in Nevada. Each firm must choose whether to adopt a Sh/LALL, convenience-store style format, or 3 LARGE , “big-box” format for its stores. The payoff matrix below indicates the profits the firms expect to make, depending on their choices of strategy. a. (15) If each firm adopts a maximin strategy, what strategy will it choose initially? What are the payoffs for the three firms? , _ b. (15) Is your answer to part (a) a Nash equilibrium? If so, explain why. If not, what will happen next? (Note, if the firms change their initial strategies, you only need to show what their next move is. Don’t need to keep going through a sequence of moves). » Film/m l willk<§flj §WL7C¢ [3 > fl »_/ 1:39" l/VL :2~ j w \‘l—“C/ LL ’) 'iT \n H . a . a I. A N / .— ‘Vh/‘l/PL 3 K/J i‘ lViV'\ 7,) v. «WK/‘2’ no > rD Whm fl/v’fl \5 Ck Flask/L Lubbrlltlnp‘u/um gum. aw CMKfl/MW 2 Ana Jr > v 3. Five oligopolists each have total cost function: Tci = so + 10*qi + 5*qu Market demand for these firms' output is fi Q=220~P (15) a. Find the market price, the quantity produced per firm, and total market quantity, if the firms are Bertrand oligopolists. " P ; WAC/L :7 (15) b. Find the quantity produced per firm, total market quantity and market price, if the firms are Coumot oligopolists. Wm‘: Cwth C W1C L P: ZZO«® mm; 220-62 “‘6; 1 Mt” f {b 220 — gig-~72 -‘ /C *1 g; V 4. Suppose demand for lava lamps is Qd = 2000 - 4P A large producer has cost function TCL = 1000 + 8"‘qL There are also 4 small producers, each with cost function TCS = 200 + 20"‘qS + .l"‘qs2 These small firms act as competitive price—takers. The market structure of this market is that of a dominant firm with a competitive fringe. That is, the large firm acts as a monopolist, taking the supply produced by the small firms as given. (30) Find the quantity produced by the large firm; the market price; and the quantity produced by each small firm. ’ ./ i" 3; V L’— ‘l‘ 07‘ PAWL§ 7 P 6&8 ‘6 L: P-2C) fl ,/00 at, .tz ~ .lg: QLP'VCO as. m I. ,0 S a w 2 “a W )/ CC" le/L T his : AMA“ VP [ bl q a”: : 2km» ~ .QL/P _ / , ll“ /00” /z</ Cu, VWZL : mCL ’/OU ’ 11/231 (go. (a ; IQ/Z‘l CPL, 6*” toss/s3 @LK: izaj‘lfl [7 (Llama/0C \ ‘ V (I \L \ f (puck/7f PL: P; [CO e [2% lll e ML, 2 * Hottkkflflo); f7$"/ :' [CO ~Lfé :(‘figg (1)0:2000'L/(5‘1): l'73'7’ ‘/ u/l A 5. Three mines produce cobalt, each with cost function TCi = 80 + 10"‘qi + 5*in Inverse demand for cobalt is P = 1480 - 5 Q 3. (l5) Find the optimal output per firm, market quantity and market price, if the firms are Coumot oligopolistst .‘lf 1? / : {til ,4 Minn/a / I ‘1” if ’1” tcho~§® ~5 [O t gt; l G : :1; (7‘9) : an) VJ . p; (k: <50; 5'" (2:0) -: b. ([5) Find the optimal output per firm, market quantity and market price, if the firms form a cartel. (Okay to round your answers to 2 decimal places) m m : m at Haw IOQ W ‘(i pfl Mam « S— (NZJG\ I; ...
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This note was uploaded on 10/04/2011 for the course ARE 100B 100B taught by Professor Larson during the Spring '10 term at UC Davis.

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ARE 100 465 - ARE 1003 SPRING 2008 M. Whitney NAME: MIDTERM...

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