Spring 2014 Managerial Economics Final Exam
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question_paper.docxSpring 2014 Managerial Economics Dr. Alex Panayides
Final Exam
Instructions: Answer any four questions. Write legibly. Begin each numbered question on a fresh page. Number the questions you are answering on the cover page. To get full credit you must show all steps in your work. Unsupported answers will receive no credit!
You must work independently. Minimum result for collusion/cheating is an F for the exam.
Due: Wednesday 4/30/2014 at 11:59pm either on a word or a PDF format only
1. The demand and cost curves for a monopoly firm are as follows:
(a) At what output and price will the firm maximize total revenue?
(b) At what output and price will the firm maximize total profit?
(c) Compare the maximum profit obtainable with the profit that the firm would have if it chose a revenue-maximizing strategy.
2. (a) The short run total cost function of a perfectly competitive firm is given as follows:
Assume that the market price of the firm’s product is P=$300. Find the firm’s profit-maximizing output and profit for the short run.
(b) The long run total cost function of the same perfectly competitive firm is given as follows:
Assuming the industry is in long-run equilibrium; find the firm’s long-run price, quantity, and profit.
3. Sports Authority and Modell’s Sporting are engaging into the following one-shot game: if Sports Authority advertises and Modell’s Sporting Goods does not, Sports Authority will make $20 million in profits and Modell’s Sporting Goods will make $6 million. If Modell’s Sporting Goods advertises and Sports Authority does not, Sports Authority will make $2 million and Modell’s Sporting Goods will make $6 million. If Sports Authority advertises and Modell’s Sporting Goods advertises, each firm earns $10 million. If neither firm advertises, Modell’s Sporting Goods will make $8 million and Sports Authority will make $4 million. (a) Write the payoff matrix for the above game.
(b) Does Sports Authority have a dominant strategy?
(c) Does Modell’s Sporting Goods have a dominant strategy?
(d) What is the Nash equilibrium for the one-shot game?
4. The market for basketballs is dominated by two firms: Wilson and Spalding. The research department of Wilson has discovered a new technology on how to make more durable basketballs and is considering whether or not to adopt the new technology. Adoption would entail a fixed setup cost of C but would increase revenues. However, if Wilson adopts the new technology, Spalding can easily copy it at a lower setup cost of C/2. If Wilson does not adopt the new technology, it will earn $10 and Spalding will earn $4. If Wilson adopts and Spalding does likewise, each firm will earn $30 in revenues. If Wilson adopts and Spalding does not, Wilson would earn $40 in revenues while Spalding would earn $0.
(a) Write this game in extensive form.
(b) Under what conditions (i.e., for what values of C) does Spalding have an incentive to adopt the new technology if Wilson introduces it?
(c) If C = 24, should Wilson adopt the new technology? Explain.
5. Cyberelectronics produces three products cyberdesktops, cyberlaptops and cybercameras which sells to two types of consumers, type 1 and type 2. There are 10,000 of type 1 and 50,000 of type 2, with the following valuations for the three products:
|
Consumer Type |
Cyberdesktops |
Cyberlaptops |
Cybercameras |
|
1 |
$250 |
$150 |
$100 |
|
2 |
$200 |
$75 |
$250 |
(b) If the manager adopts a first-degree price discrimination policy, what prices should she charge to maximize revenues and what are the revenues?
(c) If the manager uses a commodity-bundle strategy such that the products are sold as one item (i.e., she markets all products together), what price should she charge to maximize revenues and what are the revenues?
3
2
3
1
5
100
100
Q
Q
Q
STC
+
+
+
=
3
2
03
.
0
4
.
2
54
Q
Q
Q
LTC
+
-
=
P
Q
5
750
-
=
Q
TC
70
2000
+
=
