2) John will charge the following prices:
$16- 70% probability
$18 20% probability
$20 10% probability
i)
EU$16 =
EU$18 =
EU$20 =
Utility Equation 1
U(I) = I^(5/2)
The following represent if Terry charges $16, $18, or
$20
5
5
5
0.784 0 2 +0.2130 0 2 +0.11
COMM 172
Olena Ivus
Class 10
Midterm Review
Outline
1
Exam Structure
2
Exam Policies
3
Practice Questions
4
How to Prepare?
Olena Ivus
Comm172
Exam structure
Date: Wednesday, February 12
Time: 6:30-8:30pm
The midterm exam consists of two parts:
Part A
20
COMM 172
Olena Ivus
Class 11
Oligopoly II
Class 9 Practice Questions
What happens to an incumbent firms demand curve in
monopolistic competition as new firms enter?
Under a Cournot duopoly, the collusion curve represents all
possible allocations of the pu
COMM 172
Olena Ivus
Class 9
Monopolistic Competition. Oligopoly I
Class 8 Practice questions
For a prot-maximizing monopolist, how does the markup of
prices over marginal cost depend on the elasticity of demand?
Why might a rm have market power even if it
COMM 172
Olena Ivus
Class 20
Incentive Contracts
Class 19 Practice Question
In the insurance market, moral hazard refers to the problem
that high-risk customers have an incentive to give false signals
to make themselves look like low-risk customers. True
COMM 172
Olena Ivus
Class 21
Final Review
Outline
1
Exam Structure
2
Exam Policies
3
Practice Questions
4
How to Prepare?
Olena Ivus
Comm172
Exam structure
Date: Monday, April 14
Time: 9:00-12:00pm
Location: Ross Gym - Main Floor
The nal exam is comprehen
COMM 172
Olena Ivus
Class 17
Decision Making Under Uncertainty I
Class 16 Practice Question
Many industries are often plagued by overcapacity: Firms
simultaneously invest in capacity expansion, so that total
capacity far exceeds demand. This happens not o
COMM 172
Olena Ivus
Class 16
Strategic Interaction among Firms II
Class 15 Practice Question
Each players payoffs are maximized in a Nash equilibrium.
True or false? Explain.
Olena Ivus
Comm172
The Guessing Game
Suppose everyone in your class selects a re
Professor Olena Ivus
Comm 172 Final Exam Formula Sheet
Own-price elasticity of demand:
D
dQ
P
dQD /QD
=
E =
dP/P
dP
QD
D
The elasticity of demand facing an individual firm:
1 D
D
S
e = E + (1 s)E
s
Cross-price elasticity of demand:
D
Ecross
D
dQD /
Economics Exam Multiple Choice Qs
Class 2 & 3 Market Analysis & Demand Estimation & Forecasting
1. Plastic and steel are substitutes in the production of body panels for certain automobiles. If the
price of plastic increases, with other things remaining t
Class 4:
Cost of Production:
Optimal input level q, determined by cost of labor and capital
This function is too simplistic, it ignores other important costs
Expansion path: short run
Capital is fixed in the short run, can only adjust labor
TC
A
K
q
Short
Managerial Economics (COMM 172)
Prof. Veikko Thiele
PROBLEM SET TOPIC 09 (Oligopoly II)
Two large profit-maximizing firms compete by choosing price. Their estimated demand
functions are given by
30,500
10
5
30,500
and
10
5
where
and
are the prices charged
2. a)
Price of Fussy:
q F =522 P
2 P=52q F
1
P=26 q F
2
RF =Pq F
1
RF = 26 q F q F
2
1
RF =26 q F q 2
2 F
MR F =26qF
(
)
Opportunity cost: C=10 q F ,
MC=10
MR F =MC
26q F=10
q F =16
1
P=26 q F
2
1
P=26 ( 16 )
2
P=18
Price of Fussy is $18
Price of Desperat
3. Production
dQ
a) MP K =
dK
2
MP K =L
dQ
dL
MP L=2 LK
MP L=
b) No, the production function exhibits increasing marginal returns because MP and
L are positively related in the sense that when L is increased, MP also increases. By
deriving the production
1. Strategic Interaction Among Firms
a) There are none
b) The Nash Equilibrium is for both firms to produce product C because assuming
that the decisions are made simultaneously, firms would be maximizing the
potential payoff. Additionally, the best possi
1. Strategic Interaction Among Firms
a) There are none
b) The Nash Equilibrium is for both firms to produce product C because assuming
that the decisions are made simultaneously, firms would be maximizing the
potential payoff. Additionally, the best
1. The Hold-Up Problem
a) Since the advertising investment is not specific to my relationship with Steve, my
RSI is 0. However, because Steves investment in a bottling machine is specific to my
relationship with him, his RSI is the cost of the machine min
COMM 172 Notes
Class 1
Trade-Offs
Consumers: have limited incomes, which can be spent on a wide variety of goods and
services, or saved for the future.
Workers: must decide whether and when to enter the workforce, where to work, and how
many hours per
4. a)
Surplus per unit = $45 - $28 = $17
This is the total surplus from the market transaction.
b)
The highest acceptable price for HCS is $45, and the lowest acceptable price for ST is
$35.
At $45, the payoff/unit for ST is $17 (45-28), while the payoff/
2. a)
Price of Fussy:
q F =522 P
2 P=52q F
1
P=26 q F
2
RF =P q F
1
RF = 26 q F q F
2
1 2
RF =26 q F q F
2
MR F =26qF
(
)
Opportunity cost:
C=10 q F ,
MC=10
C=10 q D ,
MC=10
MR F =MC
26q F=10
q F =16
1
P=26 q F
2
1
P=26 ( 16 )
2
P=1 8
Price of Fussy is $1
1. a)
First, we must linearize the demand function by taking the natural log of the equation, and add
the time coefficient and error term:
P
b
( A) A+b t time+
ln ( k )+b s Ps +ln
ln ( Q D ) =ln ( a ) +b k
Using excel, we get the following regression r
2) John will charge the following prices:
$16- 70% probability
$18 20% probability
$20 10% probability
i)
EU$16 =
EU$18 =
EU$20 =
Utility Equation 1
U(I) = I^(5/2)
The following represent if Terry charges $16, $18, or
$20
5
5
5
0.784 0 2 +0.2130 0 2 +0.11
Economics Exam Multiple Choice Qs
Class 2 & 3 Market Analysis & Demand Estimation & Forecasting
The elasticity of demand is the same as the slope of the demand curve.
False. Elasticity of demand is the percentage change in quantity demanded divided by the