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Intermediate Microeconomics
Spring 2013
Third Exam

Due in class at the scheduled final time, Friday April 19th at 8am
 

  1. 10 points Using the concepts of consumer and producer surplus, explain the deadweight loss of a monopoly. Use a graph in your answer as well as words.

     
  2. 10 points How might game outcomes differ if the number of times a game is played is known compared to if the number of rounds is infinite? What if the game is only played once?

     
  3. 10 points Describe the model of "price leadership" in an oligopoly.

     
  4. 10 points Explain what inefficiency means to a microeconomist and why efficiency is a goal.

     
  5. 10 points Explain the logic behind the Bertrand paradox in as much detail as possible.

     
  6. 10 points Debate the proposition that monopolists are detrimental to consumer welfare. First present a defense of the proposition and then argue against it.

     

7.     15 points The game of "chicken" is played by two stupid teenagers who speed toward each other on a single lane road. The first to veer off is the "chicken" whereas the one who does not is rewarded by the other teenagers' respect. If neither veers off, they both die in a horrible, fiery crash. Payoffs in the game can be represented in this matrix (a 0 payoff = death)

 

 

Player B

 

 

 

Chicken

Not Chicken

Player A

Chicken

2,2

1,3

 

Not Chicken

3,1

0,0

 

 

a. Does this game have a Nash equilibrium? If so, what is it?
b. Would the ability of one player to firmly commit to a no-chicken strategy (throwing away the steering wheel perhaps) be desirable for that player? Explain
c. Is Chicken a game that rational persons would ever play? Explain

 

8.     15 points Suppose a company has a monopoly on a game called Monopoly and faces a demand curve given by

 

QT = 100 – P

And a marginal revenue curve given by

MR = 100-2QT

Where QT equals the combined total number of games produced per hour in the company’s two factories (QT = Q1 + Q2) . If factory 1 has a marginal cost curve given by

MC1 = Q1 – 5

And factory 2 has a marginal cost curve given by

MC2 = 0.5Q2 – 5

How much total output will the company choose to produce and how will it distribute this production between its two factories in order to maximize profits?

 

9.    15 points  With graphs and words, explain how reaction functions can be used to describe the search for equilibrium in an oligopolistic market.

 

  1. 15 points Microeconomics can be divided into consumer theory and firm theory. Using what you know about consumer theory, especially the assumptions about individual consumer behavior, which firm type --perfectly competitive, monopoly, or oligopoly-- would you say most closely acts like an "economic person"? Why?

 

  1. 15 points Write an essay in which you identify and explain the assumption of microeconomic analysis that you find the most troublesome. How does that assumption dictate the working of microeconomic theory? Is there a better replacement for that assumption that would make microeconomics more useful?