Chapter 1: Answers to Questions and Problems
1.
2.
The maximum you would be willing to pay for this asset is the present value, which is
150, 000
150, 000
150, 000
150, 000
150, 000
PV
2
3
4
1 0.09 1 0.09 1 0.09 1 0.09 1 0.09 5
$583, 447.69.
3.
a.
b.
c.
Chapter 2: Answers to Questions and Problems
1.
a. Since X is a normal good, an increase in income will lead to an increase in the
demand for X (the demand curve for X will shift to the right).
b. Since Y is an inferior good, a decrease in income will lea
Short Answer Questions
1. A risk-neutral price-taking firm must set output before it knows for sure the market price. There
is a 50 percent chance the market demand curve will be
and a 50 percent chance
it will be
. The market supply curve is estimated to
Chapter 9: Answers to Questions and Problems
1.
a. D2.
b. D1.
c.
i. $20.
ii. 0 units.
iii. $20 to $50.
2.
a. Q1
a c1 1
100 12 1
Q2
Q2 22 0.5Q2 and
2b
2
2 2
2
a c2 1
100 20 1
Q1
Q1 20 0.5Q1 .
2b
2
2 2
2
b. Q1 = 16; Q2 = 12.
c. P = 100 2(28) = $44.
Chapter 3: Answers to Questions and Problems
1.
a. When P = $12, R = ($12)(1) = $12. When P = $10, R = ($10)(2) = $20. Thus, the
price decrease results in an $8 increase in total revenue, so demand is elastic over
this range of prices.
b. When P = $4, R =
GMS402 (F2012)
Guide to the Mid-Term 2 (worth 25% of final grade)
Mid-Term 1: Covers: Chapters 5, 8, 9, and 10
For chapter 5 and chapter 10, you will be only tested on what we discussed in class.
Students will be responsible for chapter materials up to an
Useful Formulae
When a firm faces a linear demand curve for its product P = a - bQ,
its marginal revenue is MR = a - 2bQ
When the market demand in a homogeneous-product Cournot duopoly is P a b(Q1 Q 2 )
Firm 1s marginal revenue is MR1 a 2bQ1 bQ 2
Firm 2s
Chapter 10: Answers to Questions and Problems
1.
a. Player 1s dominant strategy is B. Player 2 does not have a dominant strategy.
b. Player 1s secure strategy is B. Player 2s secure strategy is E.
c. (B, E).
2.
a.
Player 1
Strategy
A
B
Player 2
A
$500, $5
Elements of Calculus: Math Review GMS 402
Calculus: addendum to the text book
Calculus is commonly used in economic analysis. Some expectation of basic calculus will be
required in this course. First and second order derivative and what they represent nee
Short Answer Questions
1. A rm must decide Whether or not to purchase a new machine. There are two types of
machine this rm can cheese. The rst type of machine will reduce costs by $3,000 in
the rst year and $2,000 in the third year. It will not reduce a
GMS402 F2012 Mid~Term§ Test
Short Answer Questions
1) (8 marks total) A manager must decide whether or not to purchase a new machine. There are
two types of machine this firm can choose. The rst type of machine will reduce costs by
$2,500 at the end of