For their economic class, students are asked to form pairs to complete an assignment. The professor asks them to work together but to turn only one copy of the problem set. Johnny and Kristen, two students of the class, decide to work together. Both of the students value the assignment. However, because Kristen and Johnny received different grades at the exam, they do not value the assignment the same way: Kristen would receive a payoff of 10 if the assignment is completed, while Johnny would receive a payoff of 15. In case the assignment is not completed, they would both receive zero payoff. The students can choose to work or not on the assignment. If both students work, it will take them 5 hours each. If only one of them work, it will take this student 12 hours to complete the assignment by itself. If none of them work, the assignment will not be completed. We assume that each hour of work costs one unit of payoff to students. Moreover, students cannot change partners.

We consider first this game as a static game in which students decide simultaneously whether to work on the assignment.

1. Write down the normal form of the game. Make sure to include the players, actions and payoffs.

2. Do Kristen or Johnny have a dominant strategy? Explain. 3. What is the Nash equilibrium of the game

3. What is the Nash equilibrium of the game.

Consider the following information about perfectly competitive firms selling milk.

Demand in the market is shown in the table below

Each producer in the market has the following costs

a. Compute each producer’s marginal cost and average total cost for 1 to 5 gallons.

b. The price of a gallon of milk is now $10. How many gallons are sold? How many gallons does each producer make? How many producers are there? How much profit does each producer earn?

c. Is the situation described in part (b) a long-run equilibrium? Why or why not?

Suppose: • the firm is required to reimburse the neighbors for pollution damage

• there are no transactions costs, and

• it is impossible for the neighbors to move.

8. What quantity does the firm produce and why?

Suppose: • transactions costs are so high that negotiation is impossible

• it would cost the neighbors $6 to move.

• there is no legal penalty for pollution.

9. Do the neighbors move? Why or why not? What is the social gain?

1. If wage decreases relative to the price capital, then the effects of this on the demand for capital is inconclusive.

   True

   False

1.5 points   

QUESTION 19

1. Assume that labor and capital are imperfect substitutes. Then the marginal rate of technical substitution (MRTS) of an isoquant is decreasing.

   True

   False

1. According to the substitution effect, an increase in the wage will increase the marginal cost of production, leading to an increase in output.

   True

   False

1.5 points   

QUESTION 16

1. If demand for labor is inelastic, then the percentage change in wage is less than the percentage change in employment.

   True

   False

1.5 points   

QUESTION 17

1. The initial effect from technological change is to reduce the demand for labor.

   True

   False

Explain the long run economic profit earned by each of the four market models. Explain how the concept of economic profit might help explain the rationale for the government’s granting of monopolies to those firms that protect their product with a patent. Please use your own words do not copy and paste a texbook solution.

Question 1 options:

The “prime” interest rate is the rate that banks charge their best customers. Nominal interest rates and inflation rates are given in the following table.

Question 1 options:

The “prime” interest rate is the rate that banks charge their best customers. Nominal interest rates and inflation rates are given in the following table.

a. In which of the years given would it have been best to be a lender? Year = ? when the Real Interest Rate was ? %
b. In which of the years given would it have been best to be a borrower? Year = ? when the Real Interest Rate was ? %.

2.Question 2 options:

Ethiopia has a GDP of $8 billion (measured in U.S. dollars) and a population of 55 million. Costa Rica has a GDP of $9 billion (measured in U.S. dollars) and a population of 4 million. Calculate the per capita GDP for each country and identify which one is higher.

Ethiopia = $?

Costa Rica = $?

The per capita GDP of ? is much lower than that of ? by ?

3.Question 3 options:

The Czech Republic has a GDP of 1,800 billion koruny. The exchange rate is 20 koruny/U.S. dollar. The Czech population is 20 million.

What is the GDP per capita of the Cz

Per capita GDP =

Per capita GDP in U.S. dollars = $

ech Republic expressed in U.S. dollars?

• Innovation and physical capital are 2 of the 4 factors of production. Discuss some specific ways that 1 of the following laws increased the productivity of 1 or both of these factors of production:
  • 1862 Pacific Railway Act
  • 1956 Federal Aid Highway Act
  • 1946 Federal Airport Act
• What other examples of economic concentration can you share?
• What are the risks and advantages to economic concentration?
• How has economic concentration influenced your industry?

Explain the effectiveness of monetary policy when capital mobility is zero (Use IS-LM-BP curves to answer the above questions)

What is your perspective of Dr. King's involvement in the Albany movement? How much credit do you feel Septima Clark deserves?

2. A community suffers from a pollution problem created by a polluter with MAC=60-2E. The damage to community from the pollution is captured by MD= 3E.

(a) If an emission the tax rate of $16/unit is applied, what will be the polluter's compliance costs in equilibrium? Show work.

(b) If emission standard is set at E= 20, what is the amount of compliance costs faced by the polluter? Show work.

(c) What is the best way to choose standard from the society's point of view in this situation? Show work.

Crunch Fitness company started operating in Melbourne in January 2016. The company experienced significant growth and expansion since it had listed on the ASX with only 20 centres. By January 2019 they were running 300 fitness centres across Australia. Their cash flows had grown significantly over the four years of operation. Crunch Fitness company was led by senior management who had aggressive expansion strategy, relying heavily on borrowings from the banks. Moreover, the management focusing on short term targets and not considering long term impacts, encouraged high risk taking. The Board was also ignorant of the risk facing the company. The company went from a positive cash flow of $400 million from its operating activities in its 2018 full year accounts to a deficit of almost $150 million in the second half of 2019. In February 2020, its Board concluded the company had insufficient cash to repay nearly $1 billion of debts to creditors and appointed administrators to take control of the company. Few months later Crunch Fitness ceased its operations.

Discuss the aspects of corporate governance and board mechanisms that could have served to limit the likelihood of Crunch Fitness company failure.

Would an industry where firms can easily and quickly increase capacity be more or less likely to collude relative to an industry where capacity growth takes longer? Explain using ideas about collusion

What are some of the types of payment models for care providers and how does this affect provider productivity and value of care provided (Getzen, Health Economics and Finance 2013, Chapter 6)?

Economists believe that many or even most mergers (or acquisitions) between two purely vertically related firms will not have negative impacts on consumers and may benefit consumers. Other than economies of scale or scope that is also present with horizontal mergers, what might explain this often-favorable view of vertical mergers?