Managerial Economics · End Term · Jan 2024 · AN

Suppose that Nita’s utility function is given by **u(I) = (10I)**\(^{0.5}\) , where **I** represents annual income in thousands of dollars. Suppose that Nita is currently earning an income of $40,000 (I = 40) and can earn that income next year with certainty. She is offered a chance to take a new job that offers a 0.6 probability of earning $44,000 and a 0.4 probability of earning $33,000. Based on the above data, answer the given subquestions.

Nita’s risk preferences are

Suppose that Nita’s utility function is given by **u(I) = (10I)**\(^{0.5}\) , where **I** represents annual income in thousands of dollars. Suppose that Nita is currently earning an income of $40,000 (I = 40) and can earn that income next year with certainty. She is offered a chance to take a new job that offers a 0.6 probability of earning $44,000 and a 0.4 probability of earning $33,000. Based on the above data, answer the given subquestions.

Should Nita take up the new job?

Suppose that Nita’s utility function is given by **u(I) = (10I)**\(^{0.5}\) , where **I** represents annual income in thousands of dollars. Suppose that Nita is currently earning an income of $40,000 (I = 40) and can earn that income next year with certainty. She is offered a chance to take a new job that offers a 0.6 probability of earning $44,000 and a 0.4 probability of earning $33,000. Based on the above data, answer the given subquestions.

If Nita is willing to join the new job and also to buy insurance to protect against the variable income associated with the new job, how much would she be willing to pay for that insurance (in $)?_____________________

A monopolist faces the demand curve **P = 11 - Q**, where P is measured in dollars per unit and Q in thousands of units. The monopolist has a constant average cost of $6 per unit. Answer the given subquestions.

What are the monopolist’s profit-maximizing price and quantity?

A monopolist faces the demand curve **P = 11 - Q**, where P is measured in dollars per unit and Q in thousands of units. The monopolist has a constant average cost of $6 per unit. Answer the given subquestions.

The resulting profit will be

A monopolist faces the demand curve **P = 11 - Q**, where P is measured in dollars per unit and Q in thousands of units. The monopolist has a constant average cost of $6 per unit. Answer the given subquestions.

Calculate the firm’s degree of monopoly power using the Lerner index

Suppose two firms operate in a market and can produce at a constant average (and marginal) cost of AC = MC = $5. Let Q1 be the output of the first firm and Q2 be the output of the second. Market demand is given by Q1 + Q2 = 53 – P. Assuming that the firms are competing as per the Cournot competition, find out the equilibrium quantity for each firm, equilibrium price and profit (π1, π2) of each firm. Based on the above data, answer the given subquestions.

Q1*= ___________

Suppose two firms operate in a market and can produce at a constant average (and marginal) cost of AC = MC = $5. Let Q1 be the output of the first firm and Q2 be the output of the second. Market demand is given by Q1 + Q2 = 53 – P. Assuming that the firms are competing as per the Cournot competition, find out the equilibrium quantity for each firm, equilibrium price and profit (π1, π2) of each firm. Based on the above data, answer the given subquestions.

Q2*= _______________

Suppose two firms operate in a market and can produce at a constant average (and marginal) cost of AC = MC = $5. Let Q1 be the output of the first firm and Q2 be the output of the second. Market demand is given by Q1 + Q2 = 53 – P. Assuming that the firms are competing as per the Cournot competition, find out the equilibrium quantity for each firm, equilibrium price and profit (π1, π2) of each firm. Based on the above data, answer the given subquestions.

P*= ______________

Suppose two firms operate in a market and can produce at a constant average (and marginal) cost of AC = MC = $5. Let Q1 be the output of the first firm and Q2 be the output of the second. Market demand is given by Q1 + Q2 = 53 – P. Assuming that the firms are competing as per the Cournot competition, find out the equilibrium quantity for each firm, equilibrium price and profit (π1, π2) of each firm. Based on the above data, answer the given subquestions.

π1= _________

Suppose two firms operate in a market and can produce at a constant average (and marginal) cost of AC = MC = $5. Let Q1 be the output of the first firm and Q2 be the output of the second. Market demand is given by Q1 + Q2 = 53 – P. Assuming that the firms are competing as per the Cournot competition, find out the equilibrium quantity for each firm, equilibrium price and profit (π1, π2) of each firm. Based on the above data, answer the given subquestions.

π2= ___________

Suppose two firms operate in a market and can produce at a constant average (and marginal) cost of AC = MC = $5. Let Q1 be the output of the first firm and Q2 be the output of the second. Market demand is given by Q1 + Q2 = 53 – P. Assuming that the firms are competing as per the Cournot competition, find out the equilibrium quantity for each firm, equilibrium price and profit (π1, π2) of each firm. Based on the above data, answer the given subquestions.

Now suppose that the two firms are competing in the Stackelberg manner where one of the firms makes its output decision before the other. Suppose Firm 1 is the Stackelberg leader (i.e., makes its output decisions before Firm 2). Calculate the equilibrium quantity for the firms, equilibrium market price and profits (π1, π2) of both the firms in equilibrium. Q1*=____________

Suppose two firms operate in a market and can produce at a constant average (and marginal) cost of AC = MC = $5. Let Q1 be the output of the first firm and Q2 be the output of the second. Market demand is given by Q1 + Q2 = 53 – P. Assuming that the firms are competing as per the Cournot competition, find out the equilibrium quantity for each firm, equilibrium price and profit (π1, π2) of each firm. Based on the above data, answer the given subquestions.

Now suppose that the two firms are competing in the Stackelberg manner where one of the firms makes its output decision before the other. Suppose Firm 1 is the Stackelberg leader (i.e., makes its output decisions before Firm 2). Calculate the equilibrium quantity for the firms, equilibrium market price and profits (π1,π2) of both the firms in equilibrium. Q2*= ________________

Suppose two firms operate in a market and can produce at a constant average (and marginal) cost of AC = MC = $5. Let Q1 be the output of the first firm and Q2 be the output of the second. Market demand is given by Q1 + Q2 = 53 – P. Assuming that the firms are competing as per the Cournot competition, find out the equilibrium quantity for each firm, equilibrium price and profit (π1, π2) of each firm. Based on the above data, answer the given subquestions.

Now suppose that the two firms are competing in the Stackelberg manner where one of the firms makes its output decision before the other. Suppose Firm 1 is the Stackelberg leader (i.e., makes its output decisions before Firm 2). Calculate the equilibrium quantity for the firms, equilibrium market price and profits (π1, π2) of both the firms in equilibrium. P*= ______________

Suppose two firms operate in a market and can produce at a constant average (and marginal) cost of AC = MC = $5. Let Q1 be the output of the first firm and Q2 be the output of the second. Market demand is given by Q1 + Q2 = 53 – P. Assuming that the firms are competing as per the Cournot competition, find out the equilibrium quantity for each firm, equilibrium price and profit (π1, π2) of each firm. Based on the above data, answer the given subquestions.

Now suppose that the two firms are competing in the Stackelberg manner where one of the firms makes its output decision before the other. Suppose Firm 1 is the Stackelberg leader (i.e., makes its output decisions before Firm 2). Calculate the equilibrium quantity for the firms, equilibrium market price and profits (π1, π2) of both the firms in equilibrium. π1= _______________

Suppose two firms operate in a market and can produce at a constant average (and marginal) cost of AC = MC = $5. Let Q1 be the output of the first firm and Q2 be the output of the second. Market demand is given by Q1 + Q2 = 53 – P. Assuming that the firms are competing as per the Cournot competition, find out the equilibrium quantity for each firm, equilibrium price and profit (π1, π2) of each firm. Based on the above data, answer the given subquestions.

Now suppose that the two firms are competing in the Stackelberg manner where one of the firms makes its output decision before the other. Suppose Firm 1 is the Stackelberg leader (i.e., makes its output decisions before Firm 2). Calculate the equilibrium quantity for the firms, equilibrium market price and profits (π1, π2) of both the firms in equilibrium. π2= ________________

Last week you purchased five large cases of Fritos for a customer who, as it turned out, did not accept delivery. You paid $100 for these cases. You have a deal with your grocers that they will pay you $0.25 for each dollar of returned merchandise. Just this week, you found a fraternity on campus that will buy the five cartons for $55 (and will pick them up from your apartment, relieving you of the need to deliver them to the frat house). Based on the above data, answer the given subquestions.

What is the opportunity cost of filling this order (i.e., selling these cartons to the fraternity)? ( in $)________________

Last week you purchased five large cases of Fritos for a customer who, as it turned out, did not accept delivery. You paid $100 for these cases. You have a deal with your grocers that they will pay you $0.25 for each dollar of returned merchandise. Just this week, you found a fraternity on campus that will buy the five cartons for $55 (and will pick them up from your apartment, relieving you of the need to deliver them to the frat house). Based on the above data, answer the given subquestions.

Should you sell the Fritos to the fraternity? _____________

Two used car dealerships compete side by side on a main road. The first, Hamid’s Cars, always sells high-quality cars that it carefully inspects and, if necessary, services. On average, it costs Hamid’s $8000 to buy and service each car that it sells. The second dealership, Latif’s Motors, always sells lower-quality cars. On average, it costs Latif’s only $5000 for each car that it sells. If consumers knew the quality of the used cars they were buying, they would pay $10,000 on average for Hamid’s cars and only $7000 on average for Latif’s cars. Without more information, consumers do not know the quality of each dealership’s cars. In this case, they would figure that they have a 50-50 chance of ending up with a high quality car, and are thus willing to pay $8500 for a car. Hamid has an idea: He will offer a bumper-to-bumper warranty for all cars he sells. He knows that a warranty lasting **Y** years will cost **$500Y** on average, and he also knows that if Latif tries to offer the same warranty, it will cost Latif **$1000Y** on average. Suppose Hamid offers a one-year warranty on all of the cars he sells. Based on the above data, answer the given subquestions.

What is Latif’s profit (per car in $) if he does not offer a one-year warranty? __________

Two used car dealerships compete side by side on a main road. The first, Hamid’s Cars, always sells high-quality cars that it carefully inspects and, if necessary, services. On average, it costs Hamid’s $8000 to buy and service each car that it sells. The second dealership, Latif’s Motors, always sells lower-quality cars. On average, it costs Latif’s only $5000 for each car that it sells. If consumers knew the quality of the used cars they were buying, they would pay $10,000 on average for Hamid’s cars and only $7000 on average for Latif’s cars. Without more information, consumers do not know the quality of each dealership’s cars. In this case, they would figure that they have a 50-50 chance of ending up with a high quality car, and are thus willing to pay $8500 for a car. Hamid has an idea: He will offer a bumper-to-bumper warranty for all cars he sells. He knows that a warranty lasting **Y** years will cost **$500Y** on average, and he also knows that if Latif tries to offer the same warranty, it will cost Latif **$1000Y** on average. Suppose Hamid offers a one-year warranty on all of the cars he sells. Based on the above data, answer the given subquestions.

What is Latif’s profit (per car in $) if he offers a one-year warranty?_______________

Two used car dealerships compete side by side on a main road. The first, Hamid’s Cars, always sells high-quality cars that it carefully inspects and, if necessary, services. On average, it costs Hamid’s $8000 to buy and service each car that it sells. The second dealership, Latif’s Motors, always sells lower-quality cars. On average, it costs Latif’s only $5000 for each car that it sells. If consumers knew the quality of the used cars they were buying, they would pay $10,000 on average for Hamid’s cars and only $7000 on average for Latif’s cars. Without more information, consumers do not know the quality of each dealership’s cars. In this case, they would figure that they have a 50-50 chance of ending up with a high quality car, and are thus willing to pay $8500 for a car. Hamid has an idea: He will offer a bumper-to-bumper warranty for all cars he sells. He knows that a warranty lasting **Y** years will cost **$500Y** on average, and he also knows that if Latif tries to offer the same warranty, it will cost Latif **$1000Y** on average. Suppose Hamid offers a one-year warranty on all of the cars he sells. Based on the above data, answer the given subquestions.

What is Hamid’s profit (per car in $) if Latif’s does not offer a one-year warranty?____________

Two used car dealerships compete side by side on a main road. The first, Hamid’s Cars, always sells high-quality cars that it carefully inspects and, if necessary, services. On average, it costs Hamid’s $8000 to buy and service each car that it sells. The second dealership, Latif’s Motors, always sells lower-quality cars. On average, it costs Latif’s only $5000 for each car that it sells. If consumers knew the quality of the used cars they were buying, they would pay $10,000 on average for Hamid’s cars and only $7000 on average for Latif’s cars. Without more information, consumers do not know the quality of each dealership’s cars. In this case, they would figure that they have a 50-50 chance of ending up with a high quality car, and are thus willing to pay $8500 for a car. Hamid has an idea: He will offer a bumper-to-bumper warranty for all cars he sells. He knows that a warranty lasting **Y** years will cost **$500Y** on average, and he also knows that if Latif tries to offer the same warranty, it will cost Latif **$1000Y** on average. Suppose Hamid offers a one-year warranty on all of the cars he sells. Based on the above data, answer the given subquestions.

What is Hamid’s profit (per car in $) if Latif’s offers a one-year warranty? _______________

Two used car dealerships compete side by side on a main road. The first, Hamid’s Cars, always sells high-quality cars that it carefully inspects and, if necessary, services. On average, it costs Hamid’s $8000 to buy and service each car that it sells. The second dealership, Latif’s Motors, always sells lower-quality cars. On average, it costs Latif’s only $5000 for each car that it sells. If consumers knew the quality of the used cars they were buying, they would pay $10,000 on average for Hamid’s cars and only $7000 on average for Latif’s cars. Without more information, consumers do not know the quality of each dealership’s cars. In this case, they would figure that they have a 50-50 chance of ending up with a high quality car, and are thus willing to pay $8500 for a car. Hamid has an idea: He will offer a bumper-to-bumper warranty for all cars he sells. He knows that a warranty lasting **Y** years will cost **$500Y** on average, and he also knows that if Latif tries to offer the same warranty, it will cost Latif **$1000Y** on average. Suppose Hamid offers a one-year warranty on all of the cars he sells. Based on the above data, answer the given subquestions.

Will Latif’s match Hamid’s one-year warranty? _____________

Two used car dealerships compete side by side on a main road. The first, Hamid’s Cars, always sells high-quality cars that it carefully inspects and, if necessary, services. On average, it costs Hamid’s $8000 to buy and service each car that it sells. The second dealership, Latif’s Motors, always sells lower-quality cars. On average, it costs Latif’s only $5000 for each car that it sells. If consumers knew the quality of the used cars they were buying, they would pay $10,000 on average for Hamid’s cars and only $7000 on average for Latif’s cars. Without more information, consumers do not know the quality of each dealership’s cars. In this case, they would figure that they have a 50-50 chance of ending up with a high quality car, and are thus willing to pay $8500 for a car. Hamid has an idea: He will offer a bumper-to-bumper warranty for all cars he sells. He knows that a warranty lasting **Y** years will cost **$500Y** on average, and he also knows that if Latif tries to offer the same warranty, it will cost Latif **$1000Y** on average. Suppose Hamid offers a one-year warranty on all of the cars he sells. Based on the above data, answer the given subquestions.

Is it a good idea for Hamid’s to offer a one-year warranty? ____________

The market demand curve for pizzas is **P=300-Q** and the market supply curve is **P=60+2Q**. A tax of **t=15** INR is imposed on one unit of pizza sold. Answer the given subquestions.

The equilibrium quantity and price before incidence of tax are

The market demand curve for pizzas is **P=300-Q** and the market supply curve is **P=60+2Q**. A tax of **t=15** INR is imposed on one unit of pizza sold. Answer the given subquestions.

Consumer surplus before incidence of tax is

The market demand curve for pizzas is **P=300-Q** and the market supply curve is **P=60+2Q**. A tax of **t=15** INR is imposed on one unit of pizza sold. Answer the given subquestions.

Producer surplus before incidence of tax is

The market demand curve for pizzas is **P=300-Q** and the market supply curve is **P=60+2Q**. A tax of **t=15** INR is imposed on one unit of pizza sold. Answer the given subquestions.

The equilibrium quantity after the incidence of tax is

The market demand curve for pizzas is **P=300-Q** and the market supply curve is **P=60+2Q**. A tax of **t=15** INR is imposed on one unit of pizza sold. Answer the given subquestions.

The new price that buyer pays after incidence of tax is

The market demand curve for pizzas is **P=300-Q** and the market supply curve is **P=60+2Q**. A tax of **t=15** INR is imposed on one unit of pizza sold. Answer the given subquestions.

The net price received by the seller after incidence of tax

The market demand curve for pizzas is **P=300-Q** and the market supply curve is **P=60+2Q**. A tax of **t=15** INR is imposed on one unit of pizza sold. Answer the given subquestions.

The loss in consumer surplus due to incidence of tax is

The market demand curve for pizzas is **P=300-Q** and the market supply curve is **P=60+2Q**. A tax of **t=15** INR is imposed on one unit of pizza sold. Answer the given subquestions.

The loss in producer surplus due to incidence of tax is

The market demand curve for pizzas is **P=300-Q** and the market supply curve is **P=60+2Q**. A tax of **t=15** INR is imposed on one unit of pizza sold. Answer the given subquestions.

The total tax revenue is

The market demand curve for pizzas is **P=300-Q** and the market supply curve is **P=60+2Q**. A tax of **t=15** INR is imposed on one unit of pizza sold. Answer the given subquestions.

Deadweight loss of tax is

What is true about monopolistic competition

Choose the correct statement

The Cobb-Douglas production function **F(K, L)=K**\(^{p}\)**L**\(^{q}\)

Choose the correct alternative

Adverse selection occurs when

If bad drivers can usually avoid being ticketed by the police, then insurance companies will

Moral hazard occurs when contracts are written in such a way that