eco1_MT3_practice_akey

eco1_MT3_practice_akey - PART TWO ( /30) Question 1 (10...

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1 PART TWO ( /30) Question 1 (10 marks) Refer to the Figure below and answer all questions. The Figure refers to production decisions by two firms, Coke and Pepsi $5 $5 Figure 2-1 1) What type of market is represented in Figure 2-1? (1) Oligopoly 2) What is the dominant strategy of each firm in Figure 2-1? (2) Both firms play “high” 3) What will be the only stable equilibrium for Figure 2-1, and why? (2) “High”-“High”, $10m each – it is the outcomes of both playing their dominant strategy. 4) Suppose the payoff matrix looks like Figure 2-1b instead, and Coke moves first. $5 $5 Figure 2-1b Draw the game below. Identify the equilibrium outcome if Coke moves first (5)
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2 Question 3 (10 marks) Refer to the Figure below Quantity Price 0 MR ATC MC AR Q 1 Q 5 Q 4 Q 2 Q 3 P 5 P 4 P 3 P 2 P 1 P 6 Figure 2-3 1) Is the market in Figure 2-3 perfectly competitive or monopolistically competitive? Why? (2) Monopolistically competitive. Price is declining as quantity sold increases: the firm is thereofore not a price-taker. 2) What is the profit-maximising quantity of production, and why? (2) Q5: it is quantity at which Marginal Revenue is equal to Marginal Cost. 3) What is the profit-maximising price charged for the quantity in part 2), and why? (2) P6: is is the Average Revenue corresponding to Q5. 4) Is this market efficient? Why or why not? (1) The market is not effcient. It is not clearing at the minimum point of ATC (Technical Efficiency) or at the point of intersection between Average Revenue and Marginal Cost (Allocative Efficiency). 5) Are the points of efficiency in this market feasible or attainable? Why or why not? (3) Technical efficiency is not profit-maximising; allocative efficiency is not profit-making at all.
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3 SECTION TWO (60 minutes) Answer any THREE of the questions in this section. Question One Economic discrimination occurs when a person is paid lower wages, or excluded from an occupation altogether, on the basis of erstwhile irrelevant characteristics such as gender or ethnicity. 1) Assuming efficient markets (including for the factors of production, e.g. labour), provide an explanation for why wage discrimination against women should not exist ( “Should” in the economic sense, not the social-welfarist sense ). Use a graph if you wish. Remember that firms maximise profits. If male and female labour is in fact equal, then firms that do not pay females a fair wage will lose them to more competitive employers. Since those competitive employers pay both males and females the fair wage (i.e. w = MRPL), then the discrimination employers will be paying males w > MRPL, which is not profit-maximising. They will either adjust (i.e. not discriminate) or, eventually, lose in the market-place. 2) Now provide an explanation for why wage discrimination against women
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eco1_MT3_practice_akey - PART TWO ( /30) Question 1 (10...

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