INTERMEDIATE MICROECONOMIC THEORY II
ECONOMICS 2151A - 001
Department of Economics
Western University
Course Outline
Instructor: Glen Stirling ([email protected])
Office: 4047 SSC
Phone: 661-2111 ext. 85264
September 2015
Course meets: Monday, Wednesday, Fr
EconS 301: INTERMEDIATE MICROECONOMICS WITH
CALCULUS
PRACTICE EXERCISES ON
INTERMEDIATE MICROECONOMICS WITH
CALCULUS
Felix Munoz-Garcia1
School of Economic Sciences
Washington State University
1
103G Hulbert Hall, School of Economic Sciences, Washington S
Ch. 12 Price Discrimination
Ch11- single-priced monopolist:
monopolist could only charge one price.
Profit max: firm produced Q where MR=MC.
Ch12 price discriminating monopolist:
monopolist will increase PS by charging different prices for its product
May
Price Competition v.s. Quantity Competition
We have seen in homogeneous products markets, price competition is
ercer than quantity competition.
We use a textbook example to see a similar phenomenon in
differentiated products markets.
For this, we work on
Microeconomics I, UPNA
7. Competitive Markets: Applications
Multiple Choice
1.
Suppose the government decides to create a price support (floor) on the price of corn,
which of the following is a true statement?
a)
A binding price support/floor will tend to
University of Western Ontario
ECON 2151B-001 Intermediate Microeconomic Theory II
Summer 2015
Midterm Exam
Name:
Time Limit: 120 Minutes
Student Number:
This exam contains 7 pages (including this cover page) and 5 problems. Check to see if any pages
are m
Bundling
Bundling is a sales practice where buyers are required to purchase
goods in package, rather than buy them separately.
Bundling goods together as a package may be protable if customers
have different tastes for these goods.
Set-up
To see how bundl
Game Theory and Strategic Behaviour
In a couple weeks, we will study markets/industries where rms
business decisions affect each others prots.
In such cases, strategic interactions may play an important role.
Game theory is a useful framework to capture i
Revisiting Mixed Strategy Nash Equilibirum
Recall there is no pure strategy Nash equilibrium in the matching
pennies game.
Player A
Head
Tail
Player B
Head
Tail
10, 0
0, 10
0, 10
10, 0
A pure strategy prescribes only a single action, such as Head or Tail.
Prot Maximization Condition
Todays topic is to learn how to nd the prot maximizing output.
Lets derive conditions that the prot maximizing output needs to meet.
Lets review the following two concepts
Marginal revenue, MR(Q): the change in total revenue du
Capturing Surplus
Consider a monopolists prot maximization problem studied so far
Compare it with a counterfactual scenario where the market is perfectly
competitive and the monopolists marginal cost corresponds to the
industry-wide marginal cost.
P
Pm
MC
Two-part Tariff
Two-part tariff consists of a charging a xed fee upfront and then charge
usage fee according to quantity bought:
E(Q) = F + PQ
where F represent the upfront fee and P is the usage fee.
The average outlay is decreasing in Q:
E(Q)
F
=
+ P.
Q
Second-degree Price Discrimination
Second-degree price discrimination amounts to quantity discounting.
If a buyers demand curve is downward sloping (i.e., a buyers willingness to pay
for goods decline as they buy more), quantity discount based on this inf
Extending the Model of Third-degree Price Discrimination
Lets generalize the model a little, and now assume a non-constant
marginal cost curve.
Consider a case depicted in the following graph. There, the marginal
cost is increasing in output.
P
DA
DB
MC
Q
Review Questions
Find the dominant strategy equilibrium of the following game.
Player A
Player B
Centre
5, 8
Up
Left
6, 6
Right
8, 9
Middle
8, 5
10, 4
9, 6
Down
5, 6
9, 6
7, 7
Find a dominated strategy in the following game.
Player A
Player B
Centre
5, 7
Quality Discrimination Quality as a Screening Device
Firms may engage in price discrimination by exploiting correlation
between customers responsiveness to price changes and tastes for
quality.
So called high-end customers have higher willingness to pay f
ECON 2152 Micro 2
Pop Quiz #1: Economics of Monopoly (Ch.11)
Short Answer (8 pts)
Suppose a market has an inverse demand curve of P( Q) = 500
a total cost function of TC ( Q) = 100Q.
Q
2
and a monopolist has
1. Write down the monopolists prot-maximizatio
ECON 2151 Micro 2
Pop Quiz #2: Pricing Strategies with Market Power (Ch.12)
Short Answer (8 pts)
As the owner of the only tennis club in an isolated wealthy community, you need to
decide on annual membership dues and fees for court time. There are two typ
ECON 2151 Micro 2
Pop Quiz #3: Strategic Behaviour and Game Theory (Ch.14)
Short Answer (10 pts)
Bank Runs (A Coordination Game): When individuals deposit their money in a bank,
the bank invests the money for example by offering loans to companies or by p
University of Western Ontario
ECON 2151B-001 Intermediate Microeconomic Theory II
Summer 2015
Midterm Exam
Name:
Time Limit: 120 Minutes
Student Number:
This exam contains 9 pages (including this cover page) and 5 problems. Check to see if any pages
are m
Micro Part 2 Notes
Chapter 11: Monopoly
Means one seller
The slope of the marginal revenue curve is twice the demand curve
o
i.e. it falls twice as fast
o
Demand curve can be thought of as the average revenue
Therefore along the x axis is D is 100 then MR
More on Dominated Strategies
We have dened a dominant strategy as a strategy that gives a player
the (strictly) highest payoff no matter how his/her opponents play the
game.
We have dened a dominated strategy as a strategy that gives a player
lower payoff
Strategic Value of Commitments
In a certain case of games/conicts/competition, the ability to take an
action rst gives a player an advantage.
Lets examine this point using the following capacity expansion game
between two car makers.
Large expansion
Honda
Repeated Prisoners Dilemma
Two individuals, players A and B, who lives innitely.
They meet and play the following prisoners dilemma game every day.
Cheat
Cooperate
Player A
Cheat
2, 2
1, 8
Player B
Cooperate
8, 1
5, 5
If their time discount rate is greate
Monopsony
A monopsony is a market where only single buyer trades with a large
number of sellers.
A monopsonist is the sole buyer in the market.
Since nobody else is buying, a monopsonist knows it can dictate the
outcomes of the market.
The monopsonist use
Review: The Welfare Economics of Market Equilibirum in Econ 2150
Welfare economics is interested in evaluating resource allocations in
terms of efciency or fairness.
In a perfectly competitive market, without any market frictions or
government interventio
Multiplant Monopoly
For many rms, production takes place in more than one facility.
Some plant may be more efcient than others, due to use of superior
technology, or worker productivity diferences.
In these situations, rms encounter a problem of allocatin
Value of Perfect Information
Making decisions under uncertainty can result in a wrong choice.
Suppose there is an option or a measure that can perfectly forecast
uncertain events.
The gain that accrues from this option is called the value of perfect
infor
Stackelberg Model of Oligopoly
In the Cournot competition, oligopolists make their production decisions
independently at the same time.
The Stackelberg model treats the timing of their decision-making
differently.
In particular, there is a leader and foll
Firms Decision Problem in Differentiated Products Markets
In differentiated products market, rms face two important decision
problems.
The rst problem concerns choice of their products characteristics.
The second problem is how to price the product given