ECO$2211-$ Final Exam $-$ Fall $2023$

$1-(20$ pts$)$ Consider a competitive industry.

All firms are identical with Average Total Cost given by:

ATC$=(q-10)2+1+N$

where $q$ is the individual firm level of output and $N$ is the number of firms

Suppose that market demand is

$Qd=100-p$

$($a$)$ Is this a constant, increasing, or decreasing$-$cost industry? What does it imply for the slope of the long run supply curve?

$($b$)$ Find the long run competitive firm's output $($the minimum efficient scale of production$)q^{**},$ the long$-$run equilibrium market price $p^{**},$ and the long$-$run equilibrium number of firms $N^{**}.$

$2-(20$ pts$)$ The equilibrium in a competitive market, where all firms are price takers, requires $P=MC.$ Is it possible for all firms to have the same marginal cost? What happens if MCs are different? Is a similar solution possible in monopolistic competition in the long run? How? Plot the graph and discuss.

$3-(20$ pts$)$ Choose one of the three monopoly strategies, Price Discrimination, Two Part Tariff and Bundling. Give for your chosen strategy either a numerical example or use graphs to show how a monopoly may increase its profits using that strategy. Choose a sector and discuss whether a monopoly in that sector can use your chosen strategy. $($Even if there are multiple companies in your chosen sector, just assume the case when there was a single company.$)$

$4-(20$ pts$)$ Selpak, like Kleenex in USA, has realized product$-$brand identity in a monopolistic competitive market with many substitutes and with free entry. Assume that Selpak is the first mover, declaring the quantity it will produce and further assume that the rest of the firms make up a single firm $($firm $2)$ for a duopoly model. If the demand function is $P=30-Q,M{C}_1=M{C}_2=0$ and the firm $2\text{'}$s reaction function is $Q=15-\frac{1}{2}{Q}_2,$ find profit maximizing. Discuss whether this market structure is still monopolistic competition.

$5-(20$ pts$)$ For a student, there can always be a temptation to cheat. If he$/$she do so and would not be caught, he$/$she gets a high grade. But if he$/$she would be caught he$/$she will get an $F$ and be punished. The professor, to be fair to all students either ask question for which cheating does not help or he$/$she can reward hardworking and honest students. Design the game with the payoff matrix and $t$ the equilibrium in this non$-$cooperative game.