Econ 201 Spring 2008 Exam 3

Econ 201 Spring 2008 Exam 3 - ECONOh/flCS 20] SPRING 2008...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 2
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 4
Background image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ECONOh/flCS 20] SPRING 2008 EXAM 3 Instructions; Please mark your answars clearly. No class notes or other materials are allowed. 100 points total. Each question is worth 6 points with the exception of Questions 4, 6, 10, and 14, which are each worth 10 points. 1. Roberto Goizueta likes to watch loud foreign films in White Hall. Robert Woodruff is taking a test in White Hall and dislikes noise. Goizueta can either watch loud foreign films, which he values at $15, or take a nap, which he values at $8. Woodrufi“ values taking the test in silence at $20 and values taking the test with noise at $10. a. Without communication or bargaining, what do Goizueta and Woodruff decide to do? What is the combined value of these activities? Gotzue’m mums loud §onefan films, and Woodrué‘é fl“; fig {(254, Win. noise. CambSnCd value: l5 + to : 35. b. Assume that Goizueta has the right to watch loud foreign films, and there is now bargaining. What do Goizueta and Woodmfi' do? Is there a transfer? If so, how much? What is the combined value? GoilUCi'Ct hues A nap, and wandwfl takes the test in Si'ifnlf‘ mnsar r“... wardruH +0 swam. 7 5+: 10- “$736”: Wham-+43 c. Assume that Woodruff has the right to take the test in silence, and there is bargaining. What do Goizueta and Woodruff do? Is there a transfer? Ifso, how much? What is the combined value? Gai‘zugra *«kes 4 mp, Clad Wanda/H rakes +1.0 +as+ In 5.16M?- No +p4n$+ep. (Pmloi'nt’r, Wilde: 8+3\0:13. 2. As a byproduct of the production of “y”, a competitive firm produces fluoride and dumps it into a river. It turns out that the town depending on the river for drinking water is better off, since fluoride helps to maintain healthy teeth. The price of “y” is P, and the firm’s cost function is C ( y) = ay2 . The town’s benefit of fluoride, in dollar terms, as a function of “y” is 901) = by2 , where a > b . a. What is the firm’s choice of “y” as a function of P (assuming it ignores the externality)? mm W“ q 73‘ 7' * p [3] P’thij10: 3 :2} b. What is the socially optimal “y” as a function of P? Mom P1‘471‘+bja‘ [3] P-2qj+353:0 =9" Pzaiaebw '79 ll "am—g) c. What per-unit subsidy would induce the firm to produce the socially optimal level of “y”? mu pj « «31+ 53 To make “H55 M likg P: M0635 7 ’ :9 S : J U] 9’qu4‘5 -0 LP 5: L— ,— 51’“- 911a!” S. 1 Ab 214—) ’9 aw 3. In the following figure, the marginal social cost (MSC) and marginal private cost (MPC) curves are labeled. The market price P is also labeled. What are the privately and socially optimal levels of output, y? and y5 , respectively? Please label the figure clearly. trite. 4. Suppose that a monopolist faces an inverse demand function of the form P( y) = a - by . The monopolist’s cost function is C( y) = ky. There is a negative extemality associated with the production of the good. Assume that the external cost per unit produced is 1.. t 10 points) a. What is the social marginal cost of production (including both private and external marginal costs)? K + l b. What is the socially efficient price PS and quantity yS ? (Hint: Social efficiency requires that P5 equal the social marginal cost. Then, use the definition of inverse demand to find yS .) F51K+A s_ qv- — maze-bf T? 535: “VAT? 3 ' t c. What is the price PM and quantity y” if the monopolist does not take the extemality into consideration? M .— q- K :3 M¢X P ’ q—L(ab) #OA "‘6 LE. :7-Cl—*Dl+l<.: q+k Di a-“bj'K“ 93" at ' 9x a d. For what value of 2. is the monopoly price PM and quantity y“ socially efficient? M .. P‘: K+X:‘WK:? fihiq-ili-l<=i_l<_ 1 9x , s n sd A when A:%/ P:P inl ,va 5. We can rewrite a monopolist’s profit as a function of price rather than a function of output: P * y(P) — C(y(P)) , where y(P) is the demand function and C( y) is the monopolist’s cost function. What is the first order condition when the monopolist chooses price to maximize profits? Max P-jff)- CHM) f of 4:4 ( :O [P] 30+ PAP dj “3 1 l 6. Previously, we found that for a competitive firm, % = EX—z or equivalently % 2 MP2 WI “’2 W1 W2 f (X ],X 2) is the production function, X1 and X 2 are inputs, and w] and w2 are input prices. Does this also hold for a monopolist @es 0r no)? Use the monopoly first order conditions to justify your answer. (Hint: Using this notation, profit for the monopolist is P(f(X1,X, )) * f(X1,X2)— w1 * Xl — w2 * X2 .) , where (lOpoian) M N F P P JL v ‘~ ’ W 1: | FOC‘: fl 9% A3 1— i j 5:. : _ iflndflfi~w¢ymflg£IW50 77 §J+q :13 8x, 690 :7 9—“, J. J j [X 31% “Cu/1“) 4' “flfl‘ifld :0 I 3": -.: a? _ TLvS if, 3" 11 M an ex» A I J“: ) 3L r 872 Yes / , w‘ "" ——-—* 7. True or false. Unlike the competitive firm, the monopolist produces such that marginal revenue (MR) equals marginal cost (MC). Explain FAKE. BO-Hn ‘HaE CObei’H’iVe 65ml Monofdiw‘S’h'l ‘6‘“‘75 froiVLE Wu“ 'Ht’t‘i’ MK: m<' ‘FOI‘ “PM. Lamfi’e‘fii’ioe «firiva MR:.P ‘ 8. There are two firms in a market, Firm 1 and Firm 2. The inverse demand function is P(y1 +y2)=10— 0.5(yl +y2). Firm 1’s cost function is C(yl) = 2y,2 +3. a. WhatisFirml’sPMP? e 3.. Man Do—0.5(31+51)]-,‘jl“ 313) —- 3 l b. What is Firm 1’s reaction function? In other words, what is the optimal yl as a function of 32;, the expected output of Firm 2? v __. C [3.] 10—3,«o.53f—45];o 2*; 53“ to 0.5111 - 2 art a if I: 12.353} or 3] Z a “ ya 5- IO 9. Find all pure strategy Nash Equilibria. flower B 10. Find all Nash Equilibria (pure and mixed su-ate . (10 points) rUl bide FUJ‘E finicky] NE 5 (LlJfilpeil) (we red (red) Blue) MfXEl’l S'l'rq‘l'ej—J Né.’ 3 .. 3 blue 1- i V l 5 J 7’ S l 1. Let’s consider the following game. n0+ SW41 5+4“! 9...], I'Aflai 0'15 a. What is the NE ofthe game? (Sway, sully) b. Supposc Player B agrees to reward Player A if Player A does not study. For what values of R (the transfer fi'om B to A) will the outcome (not study, study) become a pure strategy Nash a h” Sk’Av Z S £r R "Pa LLHSe m It? "0* 5M: W» 5 will“ R25 wi'l/ induce A [Séfl 3 lA-‘R «cow 5 9’9 ('1‘? Shut, 541/137) 43 5m, 15,0 (A0456 $1“de klan ’0‘ 0| NE J doeanfifi—n 7. g v _ c. Suppose now that the players agree to purus eac other If one studles wh11e the other doesn’t. That is, a player who studies while the other doesn’t study loses K. For what values of K will the outcome (not study, not study) become a pure strategy Nash Equilibrium? TM US i1; lS-k a, a «r. muse K33 wi'l/ w smj “hf-n 5 Jam‘s} gar/17, ,‘Mfle i lat Z ’5*K W 3 ‘YO airbase (mmr 515d} I My $4527) nor 54ml? whenll Man? ml], 45 a N6 4 12. A bear and wolf find food in the woods. Each animal can either fight or share. The corresponding simultaneous-move game is the following. . w our well __—J_.._.- Wu g nil-EL Sc 5 “I; 0 NM 5 < OH will s 1. 1, a. In the sequential version of this game where the bear moves first and the wolf moves second, what is the pure strategy NE? («($313) Slang) 535 Seqvewl’i‘al Jame 4120x15- b. In the sequential version of this game where the wolf mot/es first and the bear moves second, what is the pure strategy NE? (Show, gi'jm’) c. 15 being the first-mover good or bad? 600A. 13. True or false. Multiplying all payoffs by 2 does not change the pure or mixed strategy NE of a game. Explain. l— R l' THC ’ que: 1, on" LI} éifidmfi‘ ('73 R3, IS 4 fort HFLJ’FJJ Ng- % e.l 311"! *L" '5 “6/ (>3 “*4 ebb. Doublinj malls “an? “MFA, My“ magma Also, 91mm”: sung an; 24 >35. (XQEHEI fA‘lflfl’ l :31 P11: + 90-1): 40' P)q,€-b£}-PJ0»7U\3I Devils/v5 045W; mlvelj Waller 416 fxrf’fi‘lbfil 14. Let’s consider the modified Prisoners’ Dilemma game in which k is the cost of confessing when the do {’5 fill" other player denies (same as problem set). What is the mixed strategy NE of this game? (Hint: Since the £114 ll game is symmetric, you only need to solve for p or q.) (10 points) a,” my l “D 0-1) E J Sym’xl‘f («Mus d «'1 “Yam Wall. ‘ z “#77 4/5! 99,03) + P(l«1)(—l<)+ ((-9); (-9) +(l-PJU'1)(”) mama“: *3z—K0rz) 462 + (of) : O 'EarkJrKi w: “’1 =0 gay/Ki —K M 1 O k—l :Krl Mini 2 rzfl 0L aw: q My” J+l<‘ ...
View Full Document

Page1 / 5

Econ 201 Spring 2008 Exam 3 - ECONOh/flCS 20] SPRING 2008...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online