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Intro Assignment 2 2024 Q-1

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22 views3 pages

Intro Assignment 2 2024 Q-1

Uploaded by

Sabrina Tey
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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IntroEcons Assignment 2 2024.


Dateline December 6, 1pm sharp. No late Assignment.

1. An ice-cream parlour in Rome operates in a perfectly competitive market.


For the ice-cream seller whose marginal, average variable, and average total cost
curves are shown in the diagram below, what is the profit-maximising level of output
and the corresponding price in the short-run?

(a) The profit-maximising output is Q = 250 and the corresponding price is P = 1.75.
(b) The profit-maximising output is Q = 200 and the corresponding price is P = 2.50.
(c) The profit-maximising output is Q = 75 and the corresponding price is P = 1.75.
(d) The profit-maximising output is Q = 250 and the corresponding price is P = 2.50.

2. Assume that the demand for a new software is P(Q) = 120 - 2Q.
The cost of producing it is C(Q) = 4Q for a monopolist.
What is the deadweight loss associated with the monopoly in this market?
(a) 1,682
(b) 1,566
(c) 775
(d) 841

3. Two friends attend the same university and are revising for an exam.
They can choose whether to study a little or a lot. For which values of a is studying a
lot a dominant strategy for both students?

(a) a > 10
(b) a > 5
(c) No value of a makes studying a lot a dominant strategy.
(d) a > 2
2

4. Two firms, Tristar and Move, are deciding whether to launch their new foldable
phone in 2021 or wait until 2022. Market analysts predict that the profits of each firm
depend on when the other firm decides to launch the new phone.
They predict these to be (in million £):

Are there any Nash equilibria in this game?


(a) Yes, there is a Nash equilibrium where both launch in 2021.
(b) Yes, there is one Nash equilibrium where Move launches in 2022 and Tristar in
2021.
(c) No, there are no pure strategy Nash equilibria.
(d) Yes, there are two Nash equilibria: one where Move launches the new phone in
2021 and Tristar in 2022 and one where Move launches in 2022 and Tristar in
2021.

5. Which of the following statements is not correct?


(a) A tax does not always lead to the inefficient output.
(b) Monopolies do not always create a deadweight loss.
(c) If two firms compete in prices (Bertrand competition) they will set a higher
price than if they compete in quantities (Cournot competition).
(d) A monopolist chooses the price based on the elasticity of demand with respect
to price (PED).

6. Two firms, A and B, produce the same product and compete by setting prices.
They are the only firms that produce the product. Both firms have a marginal and
average cost of £2. If both firms set the same price, they share the market equally.
If they charge different prices, the firm charging the lower price takes the entire
market. Which one of the following statements is not correct?
(a) The equilibrium price is equal to marginal cost.
(b) In equilibrium both firms set the same price.
(c) Because the number of firms in the industry is small, firms make profits in
equilibrium.
(d) In equilibrium the two firms share the market equally.
3

7.
The table shows the total revenue of a firm. Find marginal revenue at each level of
output. Which of the following statements is correct?

(a) If marginal revenue is less than marginal cost then increasing output increases
profits.
(b) Increasing output always increases profits if marginal revenue is positive.
(c) If marginal cost is 6 at all levels of output then the profit-maximising level of
output is 4.
(d) The marginal revenue from increasing output from 3 to 4 units is 5.

8. Consider a market with the same two firms, Orange and Star, competing in
quantity to maximise their individual profits. The market demand is
P 200 9q 9q , where q1 is the quantity produced by Orange and q2 is
the quantity produced by Star. The total cost for Orange (firm 1) is TC1 = 92q1, while
the total cost for firm 2 is TC2 = 92q2.
(a) What are the Cournot-Nash equilibrium output of each firm and the market price?
(b) Orange and Star now decide to merge as they realise that profits will be higher
if they do. What will be the output of the merge firm and the market price if they
do?
(c) If the firms decide to play Bertrand, what are the equilibrium output of each firm
and the market price?

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