1The demand for a resource is a (constant, derived) ________________ demand that depends on the productivity of the resource and the price of the product made from the resource. 2.If the firm hires the resource in a purely competitive market, the marginal resource (cost, product) ______ will be (greater than, less than, equal to) _______ the price of the resource. 3.The demand for a resource will change if the (demand, supply) ___________ of the product the resource produces changes. 4.The output of the firm being constant, a decrease in the price of resource A will induce the firm to hire (more, less) ____ of resource A and (more, less)____ of other resources; this is called the (substitution, output) _____ effect. 5.A decrease in the price of a complementary resource will cause the demand for labor to (increase, decrease) __________. 6.If the marginal product of labor declines slowly when added to a fixed stock of capital, the demand for labor (MRP) will decline (rapidly, slowly) ___________. 7.The larger the number of good substitutes available for a resource, the (greater, less) ___________ will be the elasticity of demand for a resource. 8.If the marginal revenue product (MRP) of a resource is equal to the price of that resource, the marginal revenue product (MRP) divided by its price is equal to (1, infinity) __________. 9.Give four reasons why it is important to study resource pricing. 10.What are three factors that determine the elasticity of demand for a resource?

Consider an industry with two firms, each having marginal costs and total costs equal to zero.

The industry demand is P = 100 − Q where Q = Q1 + Q2 is total output.

1. Find the cartel output and cartel profits assuming that the firms share the profit equally.

Hint: In cartels, firms behave as if they are a monopoly. Hence, the cartel quantity is at the point where MR = MC. After finding the quantity, use the demand curve to find the cartel price. And then calculate Π = T R − T C. Divide the total profit by 2 to find each firm’s profit.

2. If each firm behaves as a Cournot competitor, what is firm 1’s optimal output given firm 2’s output?

Hint: This part is asking the best response function of firm 1. Solve firm 1’s profit maximizatin problem by setting its MC = MR. Then, express Q1 as a function of Q2.

3. Calculate the Cournot equilibrium output and profit for each firm.

Hint: You have already solved firm 1’s problem above. Now solve firm 2’s problem. Then, solve BR functions simultaneously to get Q1 and Q2. Use the demand function to find the equilibrium price and then calculate Π = T R − T C.

4. If the firms interact only once, is there a profitable deviation (cheating) from cartel for any firm? Find the profit of the firms in case of cheating.

Hint: If a firm deviates from cartel (cheats) it will play its profit maximizing quantity, which is the quantity on its best response function. Now, use the best response function of firm 1 to find firm 1’s cheating quantity, when firm 2 follows the rules of the cartel. Use the demand curve to find the new price level and then calculate profits.

5. Design a 2x2 normal form payoff matrix with strategies cartel and cheat. Complete the payoffs using the profits you calculated in the previous parts.

6. Now, assume that players interact twice. Hence the game is a twice repeated game. Is it possible to have (cartel,cartel) as an outcome? Explain.

7. Now, assume that players interact infinitely. Hence the game is an infinitely repeated game. Is it possible to have cartel as an outcome using tit-for-tat? If yes, give the condition on the discount factor for which cartel is sustainable​​​​​​​.

Hint: Cartel is a sustainable outcome of the repeated game if while firm 2 plays grim-trigger, there exists no profitable one-shot deviation from tit-for-tat for firm 1. Sicne the firms are identical, you don’t need to check the profitable deviations of firm 2. They will be the same. Let’s start with completing the table below. Keep in mind that firm 2 is following tit-for-tat and firm 1 is deviating from tit-for-tat only in period 2. I have already completed the first 2 rows

8. Now, using the discount factor δ calculate the total payoffs from the two cases. You will need to use formulas for infinite series. Now, find δ values which make the total payoff from no deviation bigger than the total payoff from one-shot deviation. For these values of the discount factor, firm 1 will not deviate from tit-for-tat. Since firms are identical, the same condition applies to firm 2 as well.

Consider a small country applying a tariff t as we did in class. Instead of a tariff on all units imported, however, we will suppose that the tariff applies only to imports in excess of some quota amount M’ (which is less than the total imports). This is called a “tariff-rate quota” (TRQ) and is commonly used on agricultural goods.

b. Consider the possibilities of who will receive quota rents that we talked about in class. Based on who receives the rents, how does the use of a TRQ rather than a tariff at the same rate affect Home and Foreign welfare?

c. Based on your answer to (b), why do you think Foreign firms may be more willing to accept a TRQ instead of a tariff?

1. Two firms produce a homogeneous product with an inverse market demand given by P = 100 – 2Q, where Q = q₁+q₂. The first firm has a cost function given by C₁=12q₁and the second firm has a cost function given by C₂=20q₂. The firms make simultaneous output choices to maximize profit. Determine the equilibrium values of firm outputs, market output, price, and firm profits.
2. With reference to question 1, now assume that decision-making is sequential with firm 1 choosing its output first (leader) and firm 2 choosing second (follower). Determine the equilibrium values of firm outputs, market output, price, and firm profit levels.
3. In the above question, there is clearly an advantage to the firm that chooses first. How should we measure the value of the first-mover advantage? Calculate this value for the first firm relative to values in question 1.
4. Return to the situation in question 1. Suppose demand increases by 100 units at each price. Solve for the equilibrium values of firm outputs, market output, price and firm profits.

A highly debated subject in policy recently has been how to handle medical pricing (or medical insurance coverage). What are various parts of the medical system and how price does discrimination occur? Explain what purpose it serves and what potential harm is done.

What are included in the monetary indicators (M1, M2, LF, L) provided by the Bank of Korea?
Investigate and visualize the increasing trend of each indicator since 2000.

Describe how wars have been used to drive increased global legislation/policy and globalism? Can wars be purposefully used to achieve certain international goals?

The following equations describe a firm’s demand, marginal revenue, total cost, & marginal cost:

Demand: P = 1,000 – 10Q

Total Cost: TC = 500 + 10Q + Q^2

Marginal Revenue: MR = 1,000 – 20Q

Marginal Cost: MC = 10 + 2Q

a. What level of output should be produced to maximize profits?

b. What is the market price?

c. How much profit will be earned?

d. The firm sells cereal and competes with other firms selling slightly differentiated cereal products. What type of market is this firm operating in?

The following equations describe a firm’s total cost and marginal cost:

Total Cost: TC = 500 + 10Q + Q^2

Marginal Cost: MC = 10 + 2Q

e. If the firm is a price taker and other firms in the industry sell output at a price of $100, what price should the manager of this firm put on the product?

f. What level of output should be produced to maximize profits?

g. How much profit will be earned?

h. The firm sells orange juice, which is a perfect substitute, at a farmers market. What type of market is this firm operating in?

With the basic income-leisure choice model, show possible labor supply curve for the followings.

a. The poor who are at a minimum subsistence and who aspire to middle-class consumption patterns.

b. “workaholics” who have strong preferences for labor market work.

c. The wealthy who aspire to be idle rich.

d. Workers who are reluctant to change their work hours

How will the environment affect the airline industry? Give at least 10 affects and explain each

What are ways that governments are different from households? How do these differences result in needing to treat government deficits differently than households being in debt?

Consider the used-car market for the Ford Pinto described in class. There is now a surge in demand for used Pintos; buyers would now be willing to pay up to $17,000 for a peach and $7,000 for a lemon. All else remains identical to the example seen in class.

a. What price would buyers be willing to pay for a Pinto of unknown type if the fraction of peaches in the population, f, were 0.75?

b. Will there be a market for peaches if f=0.75? Explain.

c. What price would buyers be willing to pay if f were 0.5?

d. Will there be a market for peaches if f=0.5? Explain.

e. What is the minimum value of f such that the market for peaches does not collapse?

f. Explain why the increase in the buyers’ willingness to pay changes the threshold value of f, where the market for peaches collapse.

30. An increase in household saving causes consumption to

A. rise and aggregate demand to increase.

B. rise and aggregate demand to decrease.

C. fall and aggregate demand to increase.

D. fall and aggregate demand to decrease.

35. Which of the following Fed actions would both decrease the money supply?

A. buy bonds and raise the reserve requirement

B. buy bonds and lower the reserve requirement

C. sell bonds and raise the reserve requirement

D. sell bonds and lower the reserve requirement

38. Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

A. the Federal Reserve could increase the money supply by buying bonds.

B. the Federal Reserve could increase the money supply by selling bonds.

C. the Federal Reserve could decrease the money supply by buying bonds.

D. the Federal Reserve could decrease the money supply by selling bonds.