SOLUTION: ECN 100B UCD Price Demmand and Elasticity Discussion

ECN 100B WQ 2021 Midterm
Name:
Student ID:
TA Name:
You have 24 hours to complete and upload your answers to this exam to
GRADESCOPE. IT IS DUE ON GRADESCOPE BY 3:00PM (PST/CA TIME)
SHARP ON FRIDAY February 5TH. LATE EXAMS WILL NOT BE ACCEPTED.
The exam is open book. BUT YOU MUST WORK BY YOURSELF. You may print and
work directly on this exam or use your own paper, in which case it is important to designate
which answers are to which questions very carefully. You may use a calculator.
The exam has three sections:
1. Answer 3 true/false + explanations [5 points each]
2. Answer 3 short answers [5 points each]
3. Answer 5 multi-part problems [14 points each]
In order to protect the integrity of a UC Davis degree and reward the sincere efforts of
my students, academic dishonesty of any kind will not be tolerated. All violations of the
Academic Code will be referred to Student Judicial Affairs for discipline and to impose the
strictest sanctions.
1
1
True/false + explanations
Please answer whether a statement is true or false and give a 1-2 sentence explanation of
why this is the case. NO PARTIAL CREDIT WILL BE GIVEN IF YOU WRITE “TRUE”
OR “FALSE” BUT DO NOT PROVIDE AN EXPLANATION.
1.1
Deadweight loss is always zero under perfect competition.
1.2
A factor market demand curve is the horizontal sum of the
factor demand curves of the various firms that use the input.
1
1.3
2
Without government regulation, every market would be perfectly competitive.
Short answers
Please provide 2-3 sentences answering each question.
2.1
What is a potential problem that could arise when a government wants to regulate a monopsony with a minimum wage?
2
2.2
What is the shutdown condition and why is it important to
check it?
2.3
Is price discrimination always bad for all consumers?
3
3
Multi-part problems
Please answer all parts of the question. ALL QUESTIONS WILL BE WORTH THE SAME
PERCENTAGE OF THE EXAM REGARDLESS OF THE NUMBER OF SUB-PARTS
AND ALL SUB-PARTS OF A QUESTION WILL HAVE THE SAME VALUE.
3.1
Perfect competition question
Imagine many small farms selling usb charging cables on a large online marketplace, in a
setting of perfect competition. Each individual firm faces costs C(q) = 2q 2 .
A. Derive a firm’s supply curve.
Now assume there are 200 firms selling usb cables on the same large online marketplace.
B. Derive the market supply curve.
Suppose the market demand curve is QD (p) = 1000 − 50p.
C. What are equilibrium price and equilibrium quantity?
4
D. Graph the inverse demand and inverse supply curves for the market and
indicate the equilibrium price and quantity.
E. What are consumer and producer surplus?
3.2
Price cap monopoly question
Imagine a university called Bavis that is the monopoly in the market for economics degrees,
with cost-function C(Q) = 25Q2 + 360. Imagine the inverse demand function for economics
degrees is p(Q) = 400 − 25Q. The government has decided it would ensure that there is no
deadweight loss in this market for economics degrees by setting a price cap on Bavis.
A. What would be the equilibrium price and equilibrium quantity if the government did not impose a price cap and Bavis was able to operate as an un-regulated
monopoly?
5
B. At what optimal price should the government cap economics degree sales?
C. What are the new post-price cap equilibrium price and equilibrium quantity?
D. What is Bavis’s new profit at the equilibrium?
E. Prove that this new profit level is a global maximum.
F. Show the new equilibrium price and equilibrium quantity graphically. Include
6
the original and regulated inverse demand curves, firm’s marginal revenue curve,
and firm’s marginal cost curve.
G. What are consumer surplus, producer surplus, and deadweight loss at the
equilibrium? How do they compare to the case of the un-regulated monopoly??
7
3.3
Price discrimination question
Imagine Bavis continues to be the monopoly in the market for economics degrees, though
now with cost-function C(Q) = 15Q2 . And now the inverse demand function for economics
degrees is p(Q) = 2000 − 10Q. The government no longer imposes a price cap on Bavis.
A. What are equilibrium price and equilibrium quantity?
B. Show the equilibrium price and equilibrium quantity graphically. Include the
inverse demand curve, firm’s marginal revenue curve, and firm’s marginal cost
curve.
8
Now assume that Bavis is able to perfectly price discriminate in the market for economics
degrees.
C. What three conditions must be true for this perfect price discrimination to
be possible?
D. What are the equilibrium prices and equilibrium quantity with perfect price
discrimination?
E. What are consumer surplus, producer surplus, and deadweight loss at the
perfect price discrimination equilibrium?
9
3.4
Monopsony question
Now imagine that Bavis is a monopoly employer of labor in the city of Bavis. Suppose the
firm faces an inverse supply curve of labor of w(L) = 40 + 12L.
A. What is the marginal expenditure curve for the Bavis?
Now assume the monopsony has an inverse demand curve for labor of w(L) = 100 − 6L.
B. What are the equilibrium wage and labor quantity?
10
C. Show the equilibrium wage and equilibrium labor quantity graphically. Include the inverse demand curve and the firm’s supply and marginal expenditure
curves.
D. What are Bavis’s surplus, workers’ surplus, and deadweight loss at the equilibrium?
11
3.5
Factor prices question
Imagine Bavis is producing economics degrees following production function q(L, K) =
L0.5 K 0.5 . In the short run, capital is fixed at K̄ = 625. Bavis faces price p = 150 and
can hire as many workers as it would like at a constant wage w = 75. Also, Bavis’s fixed
costs, F , are 0.
A. Find equilibrium labor (L∗ ) and wages.
B. What are Bavis’s profits at this equilibrium?
12
C. Prove that this profit level is a global maximum.
SPACE FOR NOTES. SPACE BELOW THIS SENTENCE WILL NOT BE GRADED.
13
ECN 100B WQ 2021 Midterm
Name:
Student ID:
TA Name:
You have 24 hours to complete and upload your answers to this exam to
GRADESCOPE. IT IS DUE ON GRADESCOPE BY 3:00PM (PST/CA TIME)
SHARP ON FRIDAY February 5TH. LATE EXAMS WILL NOT BE ACCEPTED.
The exam is open book. BUT YOU MUST WORK BY YOURSELF. You may print and
work directly on this exam or use your own paper, in which case it is important to designate
which answers are to which questions very carefully. You may use a calculator.
The exam has three sections:
1. Answer 3 true/false + explanations [5 points each]
2. Answer 3 short answers [5 points each]
3. Answer 5 multi-part problems [14 points each]
In order to protect the integrity of a UC Davis degree and reward the sincere efforts of
my students, academic dishonesty of any kind will not be tolerated. All violations of the
Academic Code will be referred to Student Judicial Affairs for discipline and to impose the
strictest sanctions.
1
1
True/false + explanations
Please answer whether a statement is true or false and give a 1-2 sentence explanation of
why this is the case. NO PARTIAL CREDIT WILL BE GIVEN IF YOU WRITE “TRUE”
OR “FALSE” BUT DO NOT PROVIDE AN EXPLANATION.
1.1
A market’s equilibrium price and equilibrium quantity are
always determined by the intersection of the market supply
curve and the market demand curve.
1.2
A firm can be a monopoly and a monopsony.
1
1.3
2
Deadweight loss is always zero under perfect competition.
Short answers
Please provide 2-3 sentences answering each question.
2.1
What is the optimal price cap for a government to impose on
a monopoly? Why?
2
2.2
What is a potential problem that could arise when a government wants to regulate a monopoly with a price cap?
2.3
What three conditions must be met for a firm to profitably
price discriminate?
3
3
Multi-part problems
Please answer all parts of the question.
3.1
Perfect competition question
Imagine many small farms selling usb charging cables on a large online marketplace, in a
setting of perfect competition. Each individual firm faces costs C(q) = 3q 2 .
A. Derive a firm’s supply curve.
Now assume there are 300 firms selling usb cables on the same large online marketplace.
B. Derive the market supply curve.
Suppose the market demand curve is QD (p) = 1000 − 50p.
C. What are equilibrium price and equilibrium quantity?
4
D. Graph the inverse demand and inverse supply curves for the market and
indicate the equilibrium price and quantity.
E. What are consumer and producer surplus?
5
3.2
Price cap monopoly question
Imagine a firm called Bapple that is the monopoly in the market for smartwatches, with costfunction C(Q) = 99Q2 + 20000. Imagine the inverse demand function for smartwatches is
p(Q) = 2000 − 2Q. The government has decided it would ensure that there is no deadweight
loss in this market for smartwatches by setting a price cap on Bapple.
A. At what price should the government cap smartwatch sales?
B. What are the new post-price cap equilibrium price and equilibrium quantity?
C. What is Bapple’s new profit at the equilibrium?
6
D. Prove that this new profit level is a global maximum.
E. Show the new equilibrium price and equalibrium quantity graphically. Include
the original and regulated inverse demand curves, firm’s marginal revenue curve,
and firm’s marginal cost curve.
F. What are consumer surplus, producer surplus, and deadweight loss at the
equilibrium? How do they compare to the case of perfect competition?
7
3.3
Monopsony question
Now imagine that Bavis is a monopoly employer of labor in the city of Bavis. Suppose the
firm faces an inverse supply curve of labor of w(L) = 36 + 6L.
A. What is the marginal expenditure curve for the Bavis?
Now assume the monopsony has an inverse demand curve for labor of w(L) = 72 − 6L.
B. What are the equilibrium wage and labor quantity?
8
C. Show the equilibrium wage and equilibrium labor quantity graphically. Include the inverse demand curve and the firm’s supply and marginal expenditure
curves.
D. What are Bavis’s surplus, workers’ surplus, and deadweight loss at the equilibrium?
9
3.4
Factor prices question
Imagine Bapple is producing smartwatches following production function q(L, K) = L0.5 K 0.5 .
In the short run, capital is fixed at K̄ = 25. Bapple faces price p = 40 and can hire as many
workers as it would like at a constant wage w = 10.
A. Find equilibrium labor (L∗ ) and wages.
B. What are Bapple’s profits at this equilbirum?
C. Prove that this profit level is a global maximum.
10
3.5
Static game question
Imagine an airline traveler and TSA are playing a simultaneous static game. The airline
traveler has to decide whether to arrive at the airport early or late. TSA has to decide
whether to make security lines short or long.
If the traveler arrives early and the security line is short, the travler will make his/her flight
and will get utility of 2. TSA will be happy the traveler made his/her flight but unhappy
that its employees had to work hard so it will get a utility of 1.
If the traveler arrives early and the security line is long, the traveler will still make his/her
flight and will still get a utility of 2. TSA will be very happy because the traveler made
his/her flight and its employees did not have to work hard so it will get a utility of 3.
If the traveler arrives late and the security line is short, the traveler will just make his/her
flight and will be happy to not have wasted time, so s/he will get a utility of 3. TSA will
get a utility of 1.
If the traveler arrives late and the security line is long, the traveler will miss his/her flight
and get a utility of 0. TSA will be bummed to have a stranded traveler in the airport but
otherwise happy and so will have a utility of 2.
A. Draw the payoff matrix for this game, including the players, their possible
actions, and the payoffs for each combination of actions.
11
B. Does the traveler have a dominated strategy? If yes, what is it? If no, why
not?
C. Does the TSA have a dominated strategy? If yes, what is it? If no, why not?
D. What is the Nash equilibrium of this game?
E. Is this a prisoners’ dilemma?
12
4
Extra true/false + explanation problems
4.1
Deadweight loss is always zero under perfect competition.
4.2
There is always deadweight loss in the case of a market with
a monopoly.
4.3
A monopoly that conducts price discrimination is better for
producers and consumers than one that does not.
4.4
A factor market demand curve is the horizontal sum of the
factor demand curves of the various firms that use the input.
4.5
A strategy specifies the action that a player will make at the
Nash Equilibrium of a game.
5
Extra short answer problems
5.1
What are the five characteristics that ensure firms are price
takers?
5.2
What are two reasons a market could have a monopoly?
5.3
What is the optimal minimum wage for a government to impose on a monopsony?
5.4
What are the two factors of production and which one is fixed
in the short run?
5.5
What is a dominant strategy?
5.6
What is a best response?
5.7
What is a Nash Equilibrium?
6
6.1
Extra multi-part problems
Monopoly question
Imagine a firm called Bapple that is the monopoly in the market for smartwatches, with
cost-function C(Q) = 99Q2 + 20000. Imagine the inverse demand function for smartwatches
is p(Q) = 2000 − Q.
A. What are equilibrium price and equilibrium quantity?
B. What is the monopoly’s profit at the equilibrium?
13
C. Prove that this profit level is a global maximum.
D. Show the equilibrium price and equalibrium quantity graphically. Include the
inverse demand curve, firm’s marginal revenue curve, and firm’s marginal cost
curve.
E. What are consumer surplus, producer surplus, and deadweight loss at the
equilibrium?
6.2
Specific tax of monopoly question
Now imagine that the government decides to tax smartwatches using a specific tax of 200
per smartwatch produced and sold.
A. What are the new post-tax equilibrium price and equilibrium quantity?
B. What is Bapple’s new profit at the equilibrium?
C. Prove that this new profit level is a global maximum.
D. Show the new equilibrium price and equalibrium quantity graphically. Include
the inverse demand curve, firm’s marginal revenue curve, and firm’s pre- and
post-tax marginal cost curves.
E. What are consumer surplus, producer surplus, and deadweight loss at the
equilibrium? How have these quantities changed from the no-tax case in the
monopoly question?
6.3
Price discrimination question
Imagine a firm called Bapple that is the monopoly in the market for smartwatches, with costfunction C(Q) = 15Q2 . Imagine the inverse demand function for smartwatches is p(Q) =
2000 − 10Q.
A. What are equilibrium price and equilibrium quantity?
B. Show the equilibrium price and equilibrium quantity graphically. Include the
inverse demand curve, firm’s marginal revenue curve, and firm’s marginal cost
curve.
Now assume that Bapple is able to perfectly price discriminate in the market for smartwatches.
C. What three conditions must be true for this perfect price discrimination to
be possible?
D. What are the equilibrium prices and equilibrium quantity with perfect price
discrimination?
14
E. What are consumer surplus, producer surplus, and deadweight loss at the
perfect price discrimination equilibrium?
15

Purchase answer to see full
attachment

Order a unique copy of this paper
(550 words)

Approximate price: $22

Our Basic features
  • Free title page and bibliography
  • Plagiarism-free guarantee
  • Unlimited revisions
  • Money-back guarantee
  • 24/7 support
Our Options
  • Writer’s samples
  • Expert Proofreading
  • Overnight delivery
  • Part-by-part delivery
  • Copies of used sources
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

AcademicWritingCompany guarantees

Our customer is the center of what we do and thus we offer 100% original essays..
By ordering our essays, you are guaranteed the best quality through our qualified experts.All your information and everything that you do on our website is kept completely confidential.

Money-back guarantee

Academicwritingcompany.com always strives to give you the best of its services. As a custom essay writing service, we are 100% sure of our services. That is why we ensure that our guarantee of money-back stands, always

Read more

Zero-plagiarism tolerance guarantee

The paper that you order at academicwritingcompany.com is 100% original. We ensure that regardless of the position you are, be it with urgent deadlines or hard essays, we give you a paper that is free of plagiarism. We even check our orders with the most advanced anti-plagiarism software in the industry.

Read more

Free-revision guarantee

The Academicwritingcompany.com thrives on excellence and thus we help ensure the Customer’s total satisfaction with the completed Order.To do so, we provide a Free Revision policy as a courtesy service. To receive free revision the Academic writing Company requires that the you provide the request within Fifteen (14) days since the completion date and within a period of thirty (30) days for dissertations and research papers.

Read more

Privacy and Security policy

With Academicwritingcompan.com, your privacy is the most important aspect. First, the academic writing company will never resell your personal information, which include credit cards, to any third party. Not even your lecturer on institution will know that you bought an essay from our academic writing company.

Read more

Adherence to requirements guarantee

The academic writing company writers know that following essay instructions is the most important part of academic writing. The expert writers will, therefore, work extra hard to ensure that they cooperate with all the requirements without fail. We also count on you to help us provide a better academic paper.

Read more

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2020 at 10:52 AM
Total price:
$26
The price is based on these factors:
Customer Academic level
Number of pages required
Urgency of paper