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Unformatted text preview: 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] Toby prefers computers that are faster and have bigger hard drives. Therefore, Toby's preferences over computers are complete. T F 2. [7] In our model of consumer choice, at least one consumption good must be normal. Otherwise preferences violate the “more is better” property. T F 3. [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 4. [7] If each extra worker produces two extra units of output, then the marginal product of labor is constant. T F 5. [7] A strictly dominated strategy can be played as part of a Nash Equilibrium. T F 6. [7] The fact that Todd rides his bike slowly with a helmet when he has no health insurance, but rides fast without a helmet when he does have insurance is an example of moral hazard. T F 7. [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 8. [7] We measure consumer surplus in utils. T F 9. [7] The dominant strategy equilibrium in a game will always result in the highest possible payout to each of the players. T F 10. [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 11. [7] Consider the singleperiod 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. Page 1, v4 T F 12. [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 13. [7] Suppose there are two firms in a market that sell identical products, have identical costs, but choose quantities sequentially....
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 Winter '08
 Burbidge,John
 Economics, Game Theory, Subgame perfect equilibrium, Wayne Brady

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