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Industrial Organization

by: Destinee Auer

Industrial Organization ECON 3620

Destinee Auer
GPA 3.67

James Arias

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James Arias
Class Notes
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This 4 page Class Notes was uploaded by Destinee Auer on Monday October 12, 2015. The Class Notes belongs to ECON 3620 at Georgia College & State University taught by James Arias in Fall. Since its upload, it has received 107 views. For similar materials see /class/221949/econ-3620-georgia-college-state-university in Economcs at Georgia College & State University.


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Date Created: 10/12/15
Problem Set Three Due Date Tuesday November 2 Industrial Organization Economics 3620 Fall 2010 Arias Please show your work Use only one side of each sheet of paper 1 Stalker Game Suppose that a man and a woman each choose whether to go to a prize fight or to the ballet The man would rather go to the prize fight and the woman to the ballet What is more ilnportant to them however is that the man wants to show up at the same event as the woman and that the woman wants to avoid hiIn a Construct a game matrix to illustrate this game choosing numbers to fit the preferences described verbally b If the woman moves first what will happen c Does the game have a first mover advantage d Show that there is no pure strategy Nash equilibrium if the players move silnultaneously 2 One of the problems with the iterated dominance equilibrium concept is that there are often multiple equilibria In the Iteration Path Game below two different equilibria are possible depending on the order of deletions Use iterated deletion to show both equilibria Make sure to show the order of deletions for each equilibrium Column C1 C2 C3 R1 2 12 1 10 1 12 Row R2 0 12 0 10 0 11 R3 0 12 0 10 0 13 3 The Georgia College Parking Game Suppose the number of parking spaces is less than the number of players agents wanting to park their car Each player chooses between arriving early and arriving late to park More formally the strategy set for each player is Early Late The ratio of parking spaces to players is a lt 1 The benefit of finding a parking space is B and the cost of getting up early is C Assume that B gt C and that this is a silnultaneous one shot game Given that everyone else Chooses Late then your payoff is B C if you choose Early and CIB if you Choose Late Given that everyone else Chooses Early then your payoff is CIB C if you choose Early and 0 if you Choose Late a Under what condition will Early Early Early be a Nash equilibrium b Under what condition will Late Late Late be a Nash equilibrium C Suppose that B is twice as large as C ie C B 12 Is it possible for Early or Late to be a dominant strategy Explain and prove your answer 4 Do 2 on pages 224 5 Do 2 and 4 on pages 263 Problem Set One Industrial Organization Economics 3620 Fall 2010 Arias 1 Use the definition of the price elasticity of demand and the following equation to show that a profitmaxilnizing monopolist will always produce a level of output that is in the elastic portion of the demand curve MRP Q AQ 2 For each of the following linear demand functions derive the inverse demand function and the marginal revenue function a QP 50 12P b QP100 2P c QP 20 13P 3 Consider a pizzeria in a perfectly competitive market that has the following costs a 12000 annual lease for the property they use a 20000 present value of principle and interest payments outstanding loan used to purchase two pizza ovens and wages for labor It is possible to get out of the lease at any tilne but there is a 1000 penalty for doing so The resale value of each pizza oven is 2000 Finally variable costs consist entirely of wages for labor a At the beginnin g of the year what are total fixed costs What are total sunk costs What are total avoidable fixed costs b Suppose that under current market conditions revenue for the profit maxilnizing pizzeria are 20000 and total variable costs are 5500 Should this pizzeria continue to operate What if they cannot get out of the lease and subletting is not possible 4 The formula for the Lerner lndex Ll is the following L P M C P Use the profit maxilnization condition to show that the Lerner Index is equivalent to the inverse of the price elasticity of demand 5 Suppose that the market demand for a product in a perfectly competitive market has the following linear form D 6000 50F Q f Assume that there are fifty identical firms in the market with the following cost functions Cq100q2 10q MCq 2q10 39 a Derive the inverse demand function b Show that a firm maximizes profit by producing q c Derive the market supply curve d Find the market clearing price and aggregate quantity traded e How much does each firm produce Confirm that each firm earns zero profit in equilibrium 6 Suppose an automobile manufacturer produces both cars and trucks The fixed cost associated with operating a single plant is 10000 The cost dollars of producing qi cars and q2 trucks in the same plant is 10000 70q1 80q2 What is the marginal cost of producing cars What is the marginal cost of producing trucks Do economies of scope exist Calculate the measure of scope economies when the firm produces 100 cars and 200 trucks Should the firm produce cars and trucks in a single plant or in separate plants 7 Do numbers 1 2 and 7 on pages 83 85


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