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Econ 2010-011 Spring 2014 Final Exam Part B

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Question;Section II:Complete all the blank;entries in the given table. Then use the data to graph (toscale) the Fixed;Variable, Average Fixed, and Average Variable cost curves on one graph and;graph (to scale) the Marginal, Total and Average Total cost curves on another;graph. Do the shapes of all the curves conform to conventional economic;knowledge?(5;points);(Difficulty? Easy);Betty?s;Bakery;Quantity;Fixed;Variable;Total;Average;Average;Average;Marginal;of;Cost;Cost;Cost;Fixed;Variable;Total;Cost;cakes;Cost;Cost;Cost;1;$13;$38;2;$28;3;$70;4;$64;5;$110;6;$108;7;$133;8;$185;Section III;Short and Long answers;Question A)Distinguish between Perfect Competition, Monopoly on the basis of;thefollowing: Number of Sellers;Ease of entry and exit, Nature of the product, existence of deadweight loss;determination of Prices, Shape of the demand curve faced by the firm and the;extent of Government intervention. In addition give an example for each of the;following markets in the USA, also comment on which definition of markets seems;the most realistic.(4 points) (Difficulty?Easy);Question B);Tom;(Swerves);Tom (Drives;Straight);Bryan;(Swerves);0,0;-1,+1;Bryan;(Drives Straight);+1,-1;-10,-10;Consider two;drivers, Bryan and Tom, both are headed for a single lane bridge from opposite;directions, each player has to options, first to Swerve and yield the bridge to;the other player, second to continue to Drive Straight.;The following;table shows the possible outcomes for each decision combination. The numbers in;each cell represent the players outcomes (+1= best outcome, -10 = worst;outcome);What is the equilibrium;for this game? Is there a dominant Strategy for this game? Is the equilibrium a;Nash Equilibrium? Define Pareto Optimality, is the equilibrium Pareto Optimal?;(4 Points) (Difficulty? Moderate);Question C)Consider;the following scenario (Hypothetical);Four roommates, Keats;Shelly, Byron and Coleridge each have independent, individual internet;connections, Keats? monthly internet usage is never more than 4 GB, Shelly?s;monthly internet usage is never more than 3 GB, Byron?s monthly internet usage;is 5 GB and Coleridge?s monthly internet usage is never more than 4GB.;All four of them decide to switch to a common internet connection;for the apartment and share the cost of the internet equally. The common;internet connection costs a total of $20 a month and allows for 20GB of usage;(downloads and uploads), after the 20 GB of usage is exhausted, every;additional GB used costs $3.;Six months into using the;common internet connection, the roommates realize that they are on a monthly;basis using more than 20GB and paying more than they had initially intended.;Based on what we?ve;studied in class, why do you think the roommates are overshooting the 20GB;limit? Propose atleast 3 solutions to the problem (either internal or;external)?;(Difficulty? Moderate) (4 points) (Hint: Start by classifying the common;internet connection into one of the four categories of goods we?ve studied in class. Be as detailed and explicit with your explanation of the source of the problem;and the solutions to the problem);Question D)One example of price;discrimination occurs in the publishing industry when apublisher initially;releases an expensive hardcover edition of a popular novel and later releases a;cheaper paperback edition. Use this example to demonstrate the benefits and;potential pitfalls of a price discrimination pricing strategy.(4 points) (Difficulty?Difficult) (Hint: Assume;different;points of view of benefit, the Monopolist, the consumer and the economist) [Do;draw relevant;diagrams wherever necessary];Question E)Draw a graph to;demonstrate the circumstances that would prevail in a perfectlycompetitive market where;firms are experiencing Supernormal economic profits. Identify costs, revenue;and the economic profits on your graph. Would the firm continue to make;supernormal economic profits in the long run? Explain with a Diagram.(4 points) (Difficulty?Easy);(Hint: Draw short run and long run diagrams for both the;Individual firm as well as that for the market equilibrium. Show appropriate;shifts in market equilibrium)

 

Paper#56831 | Written in 18-Jul-2015

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