Econ 98 Adjunct Review 10/6/03
2nd half Outline & Questions page1:
· Monopoly/Imperfect Competition
1. Given the demand function facing a firm is P = 20 – 5Q and the firm’s MC=2, what is the firm’s profit maximizing output decision? What price will be charged in this market?
· Game Theory & Externalities
2.
Given the payoff matrix above, what are the strategies for person A and B? Are there any dominant strategies present? If so, state them.
Also, what classic game is this payoff matrix most similar to?
3. If demand in the market for snowboards can be described as P=50-8Q and supply can be described as P=10+2Q but there is a negative marginal externality of pollution associated with the creation of snowboards that can be described as MEC = 5Q, what is the socially optimal point of quantity and price? What will the actual market equilibrium be in the absences of any market intervention?
2nd half Outline & Questions page2:
· Labor Markets and Asymmetric Information
Discuss briefly. MRP=W operates similar to supply and demand graphs but in context of the labor market. This shows how our supply and demand analysis can cross over into other scenarios. Mention Lemons problem. Will discuss those above further if time permits.
· Public Goods & Taxation
What are the two necessary conditions of a pure public good?
-Non-rival
-Non-excludable
What are some examples of public goods?
-Military
-Information (to some extent)
4. For a public good, only two demand functions determine total demand for the market. They are defined as: P=10-Q and P=20-Q. What is the equation for the total market demand?
If the government has decided to offer Q=5 of this public good, how much are people willing to pay for it?
What if MC=2 for the government. What is the optimal quantity of to be supplied?