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# This spring a second firm entered the market using

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This spring, a second firm entered the market, using the same technology, and the two firms act as Cournot duopolists. The market demand curve is unchanged. f) (4) Under this market structure, what is the equation of the demand curve of firm 1? Briefly explain why this is correct. g) (5) Do you predict that the market price(s) and quantity under Cournot duopolists will be higher or lower than those in 2004? Briefly explain why. [Note: you are not required to calculate the equilibrium, but rather to give a verbal answer.]

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ECONOMICS 203 (S01) PAGE 3 of 5 continued on page 3 It is predicted that by 2010 this market will be "perfectly competitive". The demand curve facing a perfectly competitive firm differs from the demand curve in part (f). h) (6) Briefly, explain this difference, and indicate how this difference affects the efficiency of the market outcome under perfect competition. THE END UNIVERSITY OF VICTORIA Examinations December 2005: Deferred Exam Economics 203 (F01): intermediate micro theory I INSTRUCTOR: L. WELLING DURATION: 2 HOURS TOTAL MARKS: 110 GENERAL INSTRUCTIONS: Do all questions. Each diagram that you wish marked must be clearly and carefully labeled and explained. THIS EXAMINATION HAS 2 PAGES. P ART A: (30) Each of the following statements is either true or false . State which, and justify your choice in no more than one page, double-spaced. Your answer should include a definition of any term that is underlined, and any other term you think needs a definition. DO ALL PARTS IN THIS QUESTION; each is worth 10 marks. a) If the ratio of the marginal product of capital to the marginal product of labor is 3, and the price of labor is one-third the price of capital, then a cost-minimizing firm should use more capital and less labor. b) For the game below, (up, left) is a Nash equilibrium . Player 2 Left Right Player 1 Up (4, 6) (7,2) Down (5, 3) (1, 4) c) If the (inverse) demand curve for avocados is perfectly vertical, then an per unit tax on avocados will be paid entirely by consumers.
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