Simultaneous Quantity Competition
(Cournot Competition)
Imagine the following scenario:
Two Firms (Firm 1, Firm 2)
Suppose both firms have the same cost function:
C(y)=cY
(constant MC c)
Firms face a linear inverse demand function:
p(Y)=a-bY
(Y is tot
Econ 231.04 F16
Midterm 1 Key
Version
A / B
1 / 45 d
2 / 46 e (hard)
3 / 47 c
4 / 48 b (hard)
5 / 49 c
6 / 50 c
7 / 1 d
8 / 2 a
9 / 3 c
10 / 4 b (as corrected to read, ". which would use commodity "a" as money?")
11 / 5 c
12 / 6 d
Answers for Intermediate Microeconomics: Midterm 2 (November 5, 2012)
Answer all questions and show all of your work to receive full credit.
1. Some Questions about Returns to Scale
(5 points) What is the dening characteristic of an Increasing Returns to
Announcements
Homework Assignment Aplia to be posted later today.
Components of a Game
The components of a game:
Set of Players
Strategy Set
Payoff Function
For a two-player, one-shot, simultaneous moves
game, we can summarize all of these elements
Chapters 28, 29 27 (in that order)
Game Theory and Oligopoly
First Degree Price Discrimination
We have looked at firm behavior in two extreme cases:
Perfect Competition Firms dont worry about the operation of
other firms because the market price communi
Announcements
Written Homework 3 has been posted on the Blackboard
website. Again, you can work in groups of up to 3. If you
work in a group, you MUST ONLY TURN IN ONE COPY
of the assignment. Just list all of your names on the one
assignment that you tu
Monopoly and Inefficiency
We havent talked much about welfare or inefficiency.
Our notion of efficiency is that of Pareto Efficiency: An
market outcome is Pareto efficient if it is impossible to
reallocate resources and make someone better off without
m
Announcements
Homework Due Next Sunday Night (For Real) Aplia.
Will post this later today.
Monopoly
(Chapter 24)
Motivation
So far, we have just examined the case of perfectly
competitive markets.
Firms could not change the market price of their output
Announcements
Homework Due Next Sunday Night Aplia. Will post this
later today.
Movie night - November 16th from 7-10pm Room 442 in
Sama. There will be pizza.
Announcements
Bedtime Exercise from Last Week:
Derive Supply Curve for CRS Cobb Douglas in S
Firm Supply Perfect Competition
(Chapter 22)
Firm Supply - Motivation
Now that we have the machinery to construct cost curves,
we are in a position to more easily characterize the supply
decision of an individual firm.
We will also being thinking about
Announcements
Midterm #2 Next Week Tuesday, November 6.
Midterm #2 Coverage: Up through Chapter 21.
Homework (on paper) will be posted later today. Due
Next Sunday. This will also function as a review.
Can work in groups of up to 3.
Review Session Ne
The firm chooses that combination of inputs along the
isoquant that falls on the lowest isocost line.
Cost Minimization
This occurs at a point of tangency between the
isoquant and the isocost line.
The tangency condition requires:
or
Cost Minimization
Cost Minimization
(Chapter 20)
Cost Minimization
We have been looking at the firms problem as one of
choosing input vector, x
Since we have a production technology, this directly
determines output, since Y=F(x)
An alternate approach to the firms proble
Announcement
You have a set of Aplia homework assignments due by
this coming Sunday, October 21, 11:00 PM.
Will be posted later today.
Profit Maximization
Firms
Choose Production Plan (K,L) from some universal set of
production plans.
Production techn
Risk and Uncertainty
So far, we have been assuming that individuals know all
of the information about their economic environments with
certainty:
Consumers know the prices that they will face with certainty, they
know the exact amount of income that the
Announcements:
Exam Coverage (will post a more detailed set of review
slides)
1) Everything since last midterm
2) Optimization Given a consumers problem, firms problem, etc
3) Cost Minimization.
Will calculate grades excluding final exam and make
the
CAS Econ 231.04 F16
Second Midterm Key
Version a/b
1/45 b easy
2/46 b easy
3/47 b
4/48 d easy
5/49 b
6/50 b
7/1 c easy
8/2 d easy
9/3 b
10/4 d hard - money becomes worthless, so the price level goes to infinity
11/5 e
12/6 a
13/7 e
1