Economics
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eco_updated_2.docxRunning head: Economics
PAGE 5
Economics
Economics
Name:
Course:
Instructor:
Institution:
Date of Submission:
1.
(a)
|
Quantity demanded (Q) |
Midpoints for quantity |
Price ($) (P) |
Total Revenue (P*Q) |
Marginal revenue |
Marginal cost |
|
0 |
|
90 |
0 |
|
30 |
|
20 |
10 |
80 |
1600 |
1600 |
30 |
|
40 |
30 |
70 |
2800 |
1200 |
30 |
|
60 |
50 |
60 |
3600 |
800 |
30 |
|
80 |
0 |
50 |
4000 |
400 |
30 |
|
100 |
90 |
40 |
4000 |
0 |
30 |
|
120 |
110 |
30 |
3600 |
-400 |
30 |
|
140 |
130 |
20 |
2800 |
-800 |
30 |
|
160 |
150 |
10 |
1600 |
-1200 |
30 |
|
180 |
170 |
0 |
0 |
-1600 |
|
Total revenue=price *quantity
Marginal revenue is the total revenue in period 2 less total revenue in period 1. e.g. 2800-1600=1200
1200
Figure: Demand, Marginal Cost and Marginal Revenue curves
EMBED MSGraph.Chart.8 \s
Quantity
Price, MC, MR
(b) The profit maximizing quantity of oil produced by the firm is 76 and price charged is $55. This is because there are no imports and exports so the market is more-or-less like a monopoly. The MR=MC is met at quantity 76 but the corresponding price charged is $55.
(c) The allocation is inefficient. This is because prices charged are above the marginal cost implying that the consumer welfare is reduced.
(d)
Consumer surplus =
Producer surplus =0
This is because the MC curve (whose rising portion should give the supply curve) is constant so the firm is experiencing constant marginal costs. Thus, the producer surplus is zero.
(e) They would charge price of $30 and quantity would be 120. This is because under perfect competitive conditions the firm would be guided by the P=MC condition.
(f) The consumer surplus would become
The producer surplus would not change because the still are constant marginal costs.
2.
(a) Payoff matrix
|
Classmates |
Me |
||
|
|
|
Study |
Not Study |
|
|
Study |
(80,80) |
(90,49) |
|
|
Not Study |
(90,49) |
(49,49) |
()
(b) I will choose to study. If I chose not to study, the classmates will study and I will fail. They will not choose not-study because they will not want to fail. This is a dominant strategy because it strictly reflects what will be done. At no time will not-study be chosen.
(c) They will study. This is because if they chose not to study I will study and they will fail. They will not choose not-study because they know both of us will fail. Studying strictly dominates not-studying.
(d) The Nash Equilibrium is (Study, Study). This is because no other equilibrium promises an equilibrating choice than this one. This is not a prisoner’s dilemma. In the prisoner’s dilemma, one party’s action may harm the other so that there ends up being no equilibrating choice. In this case there is a common choice which improves the welfare of both the parties ADDIN EN.CITE <EndNote><Cite><Author>Hal Varian</Author><Year>2006</Year><DisplayText> (Varian, 2006)</DisplayText><record><ref-type name="Book">6</ref-type><contributors><authors><author>Hal Varian</author></authors></contributors><titles/><title>Microeconomic Theory & Applications</title><periodical/><dates><year>2006</year><pub-dates/></dates></record></Cite></EndNote> (Varian, 2006).
Works Cited
ADDIN EN.REFLIST
Varian, H. (2006). Microeconomic Theory & Applications. New York: McGraw Hill.
Price ($) (P)
10.000000 30.000000 50.000000 70.000000 90.000000 110.000000 130.000000 150.000000 170.000000 80.000000 70.000000 60.000000 50.000000 40.000000 30.000000 20.000000 10.000000 0.000000 Marginal revenue
10.000000 30.000000 50.000000 70.000000 90.000000 110.000000 130.000000 150.000000 170.000000 1600.000000 1200.000000 800.000000 400.000000 0.000000 -400.000000 -800.000000 -1200.000000 -1600.000000 Marginal cost
10.000000 30.000000 50.000000 70.000000 90.000000 110.000000 130.000000 150.000000 30.000000 30.000000 30.000000 30.000000 30.000000 30.000000 30.000000 30.000000
