Econ 302

Homework #4

McLeod

Due in class Wednesday, November 6th.

Name ______________________________________________________ ID # ________________________________________________________ Instructions: Please Read Care ully
Please !rint out this orm. "he irst sheet is intended only as a cover sheet. Do not #rite anythin$ on the irst sheet e%ce!t your name and ID #. Please ans#er each &uestion on the !a$e !rovided. I you need e%tra s!ace, you may use the bac' o the sheet. "here are () !ossible !oints on this home#or' assi$nment. *ou may #or' to$ether, but you +,-" WRI". ,P */,R /WN W/R0 and ",RN I" IN, IN P.R-/N, 1" "2. 3.4INNIN4 /5 C61-- on Wednesday, November 6th. 6ate home#or' #ill not be acce!ted.

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1. (24 points) Suppose a monopolist can purc ase La!or at a price w " 3# and can purc ase $apital at a price r " 2%. & e monopolist's production (unction is )i*en !+ , " L1-2.1-2. & e demand (acin) t e monopolist is )i*en !+ / " 100 1 3,. a) 2 at is t e Monopolist's total cost (unction3

!) 2 at is t e Monopolist's Mar)inal $ost3

c) $omplete t e (ollowin) ta!le. 4n t e (irst column5 (ind t e *alues (or t e Monopolist. 4n t e second column5 (ind t e *alues i( t e market were instead per(ectl+ competiti*e. +ono!oly Price 8uantity o /ut!ut Consumer -ur!lus Producer -ur!lus Dead#ei$ht 6oss 6erner Inde% Per ect Com!etition

2. (1# points) Suppose t ere are two (irms in a market w o eac simultaneousl+ c oose a 6uantit+. 7irm 1's 6uantit+ is 615 and (irm 2's 6uantit+ is 62. & ere(ore t e market 6uantit+ is , " 61 8 62. & e market demand cur*e is )i*en !+ / " #0 1 4,. 9lso5 eac (irm as constant mar)inal cost e6ual to 12. & ere are no (i:ed costs. & e mar)inal re*enue o( t e two (irms are )i*en !+; M<1 " #0 1 061 1 462 M<2 " #0 1 461 1 062. 9) How muc output will eac (irm produce in t e $ournot e6uili!rium3

=) 2 at will !e t e market price o( t e )ood3

$) How muc pro(it does eac (irm make3

>) 2 at is t e consumer surplus in t e market3

(Stackel!er) >uopol+) 7or parts E 1 H5 use t e same demand and cost (unctions as )i*en a!o*e. ?ow suppose 7irm 1 c ooses its 6uantit+5 615 (irst and t en 7irm 2 c ooses its 6uantit+5 62. E) How muc output will eac (irm produce in t e Stackel!er)@?as E6uili!rium3

7) 2 at will !e t e market price o( t e )ood3

A) How muc pro(it does eac (irm make3

H) 2 at is t e consumer surplus in t e market3

3. (10 points) Suppose t at two pla+ers are pla+in) t e (ollowin) )ame. /la+er 1 can c oose eit er &op or =ottom5 and /la+er 2 can c oose eit er Le(t or <i) t. & e pa+o((s are )i*en in t e (ollowin) ta!le; /la+er 2 <i) t 2 2 0 #

/la+er 1

&op =ottom

Le(t 4 1

1 3

w ere t e num!er on t e le(t is t e pa+o(( to /la+er 95 and t e num!er on t e ri) t is t e pa+o(( to /la+er =. 9) >oes pla+er 1 a*e a dominant strate)+5 and i( so w at is it3 =) >oes pla+er 2 a*e a dominant strate)+ and i( so w at is it3 $) 7or eac o( t e (ollowin) strate)+ com!inations5 write &<BE i( it is a ?as E6uili!rium5 and 79LSE i( it is not; i) &op-Le(t ii) &op-<i) t iii) =ottom-Le(t i*) =ottom <i) t >) 2 at is /la+er 1's ma:imin strate)+3 E) 2 at is pla+er 2's ma:imin strate)+3 7) 4( t e )ame were pla+ed wit /la+er 1 mo*in) (irst and pla+er 2 mo*in) second5 usin) t e !ackward induction met od we went o*er in class5 w at strate)+ will eac pla+er c oose3