BS2242 Principles of Micro Economics January 2015-6

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Page 10 of 11 This examination is subject to Examination Regulations for Candidates 2016 SECOND YEAR JANUARY EXAMINATION PAPER BS2242 PRINCIPLES OF MICRO ECONOMICS Section B Answer ALL questions Q1. Jennifer has a weekly income of £150 which she spends on theatre tickets (T) and the numéraire (n). From Jennifer’s utility function, you have calculated that the marginal utility of theatre tickets is 3n and the marginal utility of the numéraire is 2T. The price of the numéraire is £2. a) If the price of a theatre ticket was £30, how many tickets would Jennifer choose to buy? b) If the price of a theatre ticket was £15, how many tickets would Jennifer choose to buy? c) Draw Jennifer’s individual demand curve for theatre tickets. (15 marks) Q2. The market for “Good X” is a perfectly competitive market. Market demand is given by the expression Q D = 1000 50P whilst market supply is given by Q S = 200P. “Hooplar” is a firm operating in the market. The firm’s total costs are given by TC = 100 + 0.05q 2 . a) What is the equilibrium price in the market? What quantity will Hooplar produce? b) How much profit will Hooplar make in the short run? c) How much profit will Hooplar make in the long run? (15 marks) Q3. Compare and contrast the Bertrand and Cournot models of oligopoly in terms of their key assumptions and resulting equilibria. Discuss which of the models gives a more realistic account of an undifferentiated oligopoly.
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