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QUESTION 1 25 points Save Answer Select the correct word(s) from the drop down menu to finish the following sentences: Central Park in New York City is an open space for any visitor. Therefore, Central Park is . Because Central Park is so big, many people can walk around and enjoy the scenery. This benefit of the park is . Considering those two characteristics, Central park is a QUESTION 2 25 points Save Answer Select the correct word(s) from the drop down menu to finish the following sentences: Chocolate cookies are sold at supermarkets, and sellers only provide cookies to the consumers who purchase them. Therefore, cookies are . If I eat a cookie, it disappears, and the same cookie cannot be consumed by another person. Thus, cookies are C. Considering those two characteristics of cookies, cookies are QUESTION 3 25 points Save Answer Select the correct word(s) from the drop down menu to finish the following sentences: Fish in the ocean can be caught by anyone, and it is difficult to prevent people from fishing, in this sense, fish in the oceans are C. If I catch a fish, that means there is one less fish in the sea for someone else to catch. Therefore, fish are . Considering those two characteristics, fish in the ocean are QUESTION 4 25 points Save Answer Select the correct word(s) from the drop down menu to finish the following sentences: Movies in the movie theater can only be watched by people who purchase tickets. Therefore, movies in movie theatres If I buy a movie ticket and the theatre is not full, other people in the movie theater can watch the movie at the same time. In this sense, the movies in movie theatres are C. Considering those two characteristics, movies in the movie theaters are1. (25 points) Consider two firms, 1 and 2, producing an identical good simul- taneously. This good has market demand given by the demand function y = (12 - p)/3, where p is price, and y = y1 + y2 is market quantity. yi represents the amount produced by firm i. Suppose production cost is 2yi + 1 for each firms. (a) Solve algebraically for these firms' reaction functions, expressing each firm's optimal output level given the level of its competitor's out- put.(5 pts) (b) Graph these reaction functions and show the equilibrium point. In- clude isoprofit contours through the equilibrium point for both firms. (5 pts) (c) Solve algebraically for the equilibrium: Determine the equilibrium market price, as well as each firm's equilibrium quantity and profit. (5 pts) (d) Solve for the collusive outcome in which two firms split monopoly profits. Is the profit for each firm in the collusive outcome larger than in the non-collusive outcome? Do you think firms will choose the quantities in the collusive equilibrium? Why? (5 pts) (e) Now consider that the marginal cost for each firm has increased to 3 while the fixed cost decreases to zero. Imagine that firms choose prices rather than quantities. Consumers split themselves evenly across the firms if the firms set the same prices, otherwise all con- sumers shop at the lower-priced firm. (5 pts) (1) Define a Nash equilibrium in prices p1 and p2. (2) Explain why the prices p, and p2 you propose is an equilibrium.3. Consider the following delegation versus centralisation model of decision making, loosely based on some of the discussion in class. A principal wishes to implement a decision that has to be a number between 0 and 1; that is, a decision d needs to be implemented where 0 S d S 1. The difculty for the principal is that she does not know what decision is appropriate given the current state of the economy, but she would like to implement a decision that exactly equals what is required given the state of the economy. In other words, if the economy is in state s (where 0 S s s 1) the principal would like to implement a decision d = s as the principal's utility Up (or loss 'om the maximum possible prot) is given by UP = is d | . With such a utility mction, maximising utility really means making the loss as small as possible. For simplicity, the two possible levels of s are 0.4 and 0.7, and each occurs with probability 0.5. There are two division managers A and B who each have their own biases. Manager A always wants a decision of 0.4 to be implemented, and incurs a disutility UA that is increasing the further from 0.4 the decision d that is actually implement, specically, U A = 'OA d|. Similarly, Manager B always wants a decision of 0.7 to be implement, and incurs a disutility UB that is (linearly) increasing in the distance between 0.7 and the actually decision that is implemented - that is U B = |0.7 d l . Each manager is completely informed, so that each of them knows exactly what the state of the economy 5 is