Econ 401 W08 Final Exam v3

Econ 401 W08 Final Exam v3 - April 22, 2008 Name_ Final...

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April 22, 2008 Name___________________________ Final Exam Economics 401 Assume throughout the exam that preferences are strictly monotonic and strictly convex and that indifference curves are not kinked UNLESS the question tells you otherwise. The number in brackets [] before the text of each question refers to its point value. There are 15 True/False questions worth 7 points each, 25 multiple choice questions worth 7 points each, and 10 multiple choice questions worth 12 points each. T F 1. [7] If two firms produce identical products and have identical costs c>0, the equilibrium duopoly price will be lower if the firms engage in Bertrand, rather than Cournot comptetion. T F 2. [7] The First Welfare Theorem tells us that any Pareto efficient allocation is a competitive allocation for some prices. T F 3. [7] Consider the single-period Cournot model with strictly positive, constant marginal costs. As the number of firms becomes very large, the total output in the Nash equilibrium approaches the total output in the competitive equilibrium. T F 4. [7] Consider the infinitely repeated Cournot duopoly game, with marginal costs of 0 for both firms. The Grim Trigger punishment is a credible threat because punishments constitute a Nash Equilibrium of the stage game. T F 5. [7] If each extra worker produces two extra units of output, then the marginal product of labor is constant. T F 6. [7] Stephan wants his GSIs to work hard, but they generally prefer to slack. Stephan considers offering the GSIs a bonus, while the GSIs simultaneously choose whether to work or slack. If the payoffs are given in the following game, then Stephan will never give the GSIs a bonus. 0, 0 3, -1 No bonus -1, 2 3,2 Bonus Stephan Slack Work GSIs T F 7. [7] Toby prefers computers that are faster and have bigger hard drives. Therefore, Toby's preferences over computers are complete. Page 1, v3

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T F 8. [7] Johnny has a discount factor of 1/2. He has just won the lottery and can collect his winnings in one of two ways. Option A pays Johnny \$10,000 this year and \$10,000 every subsequent year for the rest of his life. Option B pays Johnny \$18,000 this year and \$3,000 every subsequent year for the rest of his life. If Johnny thinks he will live forever, then he will choose Option A. T F 9. [7] We measure consumer surplus in utils. T F 10. [7] In order to offset the harm from a price increase, we can give the consumer an amount of money called Hicks compensation. This Hicks compensation will move her to a new indifference curve. T F 11. [7] In our model of consumer choice, at least one consumption good must be normal. Otherwise preferences violate the “more is better” property. T
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This note was uploaded on 12/10/2011 for the course ECON 401 taught by Professor Burbidge,john during the Winter '08 term at Waterloo.

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Econ 401 W08 Final Exam v3 - April 22, 2008 Name_ Final...

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