Assignment:
Question 1.
a. What is the objective of an individual firm in a perfectly competitive industry?
b. What are all the possible short-run outcomes for an individual firm in a perfectly competitive industry? Draw the graph(s). Explain.
c. What are all the possible long-run market outcomes in a perfectly competitive industry? Draw the graph(s). Explain.
Question 2
Consider a perfectly competitive industry at a long-run equilibrium.
a. Suppose there is a sudden change in consumer preferences which increases the demand for the firm's product. What are the effects of the change on the equilibrium of an individual firm in the short and the long run? Draw the graphs. Explain.
b. Suppose there is an adverse technological shock that increases the cost of production of the firms in the industry. What are the effects of the change on the equilibrium of an individual firm in the short and the long run? Draw the graphs. Explain.
Question 3.
a. What do you think the business model of Facebook is? In what type of market structure operates? Draw the relevant graph.
b. How does advertising affect the cost per unit? How does advertising affect the mark-up? Justify your answers.
Question 4.
Price (dollars per unit) Quantity demanded (units)
26 0
24 1
22 2
20 3
18 4
16 5
14 6
12 7
10 8
Quantity produced Average total Marginal Cost
(units) cost (dollars) (dollars)
0
1 18.00 8.00
2 12.00 6.00
3 10.66 8.00
4 10.50 10.00
5 11.20 14.00
6 12.66 20.00
7 15.14 30.00
8 23.25 80.00
The demand and cost schedules for a firm in monopolistic competition are in the above tables. A
a. What is the profit-maximizing level of output and price?
b. What amount of profit is the firm earning?
c. Is this firm in a short-run or long-run equilibrium? Justify your answers.
Question 5.
a. Chris and Pat play the game shown below, without communicating with each other. Christ is playing across the rows and Pat is playing across the columns. The payoffs are given as: (x,y) = (payoff to Chris, payoff to Pat). Can you predict the outcome of the game? Explain.
New York San Francisco
New York (3,2) (1,1)
San Francisco (0,0) (2,3)
b. Chris and Pat play the game shown below, without communicating with each other. Christ is playing across the rows and Pat is playing across the columns. The payoffs are given as: (x,y) = (payoff to Chris, payoff to Pat). Can you predict the outcome of the game? Explain.
Buy Sell
Buy (+1,-1) (-1,+1)
Sell (-1,+1) (+1,-1)
c. In the following 3-person simultaneous game player 1 chooses the row (U,M, D), player 2 chooses the column (L, R), and player 3 chooses the box (Box 1, Box 2). Can you predict the outcome of the game? Explain.
Box 1
L R
U 1,0,2 1,1,1
M 2,0,2 1,1,1
D 1,1,1 0,2,2
Box 2
L R
U 1,0,0 1,2,1
M 0,2,2 1,1,1
D 1,1,1 2,0,2
Question 6.
Players play the following games. Payoffs are given as: (x, y) = (payoff to player 1, payoff to player 2). What are the predicted outcomes of the game? Explain.
a. Players 1 and 2 play the following game. Find the outcome. Explain.
b. Players Firm 1 and Monopoly play the following "entry game". Can you predict the outcome of the game? Explain.
c. Players 1, 2 an 3 play the following game. Find the outcome of the game. Explain.
d. Players 1 and 2 play the following bargaining game. Can you predict the outcome of the game? Explain.
