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Class Test-I Intermediate Microeconomics-II Time: 1 Hour Maximum Marks: 25

1. This document provides a sample test for an intermediate microeconomics class. It contains 3 questions testing concepts related to monopoly, oligopoly, and game theory. Question 1 involves monopoly profit maximization and deadweight loss calculations. Question 2 involves third-degree price discrimination by a monopolist across two markets. Question 3 provides a game theory payoff matrix and asks students to find pure and mixed strategy Nash equilibria.

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amrat meena
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71 views

Class Test-I Intermediate Microeconomics-II Time: 1 Hour Maximum Marks: 25

1. This document provides a sample test for an intermediate microeconomics class. It contains 3 questions testing concepts related to monopoly, oligopoly, and game theory. Question 1 involves monopoly profit maximization and deadweight loss calculations. Question 2 involves third-degree price discrimination by a monopolist across two markets. Question 3 provides a game theory payoff matrix and asks students to find pure and mixed strategy Nash equilibria.

Uploaded by

amrat meena
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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CLASS TEST-I

Intermediate Microeconomics-II
Time: 1 Hour maximum marks: 25
Note: Answer any one question

1. (9+9+7)
(a) A perfectly discriminating monopolist faces a linear demand curve;
Q = 25 – 0.5P
His total cost is a linear function of his output level and given as C = 25 + 10Q.
Determine the equilibrium level of output and profit of this monopolist and Calculate deadweight loss
also. Compare these values with those of the situation in which the monopolist were not a position to
discriminate.
(b) Assume that the market demand and costs of the duopoly firms are
P = 100 – 0.5 (X1 + X2); C1 = 5 X1 ; C2 = 0.5X22

(i) Calculate the Cournot equilibrium. What are market price, quantities and profits of each firm?
(ii) Calculate the Perfect Cartel equilibrium price, quantities and profits.
(iii) Calculate Stackelberg equilibrium price, quantities and profits of each firm when, Firm 1 is leader
(first mover).
(c) There are two players who can play two strategies: A or B. the payoff matrix is given as under;
Player 2
A B
Player 1 A 14, 10 0, 3
B 4, 0 8, 8

(i) What are the pure strategy Nash equilibrium for this game?
(ii) Find the mixed-strategy Nash equilibrium in which each player randomizes over just the first
two actions.
(iii)
(iv) Write the above game in extensive form, if the players make their strategies sequentially, with
player 1 playing first.
(v) Find the Nash equilibrium and sub game perfect Nash equilibrium in the sequential game,
when player 1 is first mover.
2. (10+8+7)
(a) Suppose a monopolist sells its product in two different markets separated by some distance. The demand
curves in the markets given by

q1 = 110 – 2p1 and q2 = 35 – p2.


Marginal and average costs are constant at Rs.15.
(i) If the monopolist can maintain the separation between the two markets, what are total profits in
this situation?
(ii) Suppose the firm could adopts a linear two part tariff under which marginal prices must be equal
in the two markets but lump-sum entry fee might vary. What pricing policy (third degree price
discrimination or linear two part tariff) should the firm follow?

(b) Consider a duopoly with product differentiation in which the demand and cost functions are;
q1 = 88 – 4p1 + 2p2; C1 = 10q1 and q2 = 56 + 2p1 – 4p2; C2 = 8q2 for firm 1 and 2 respectively.
Drive a price reaction function for each firm on the assumption that each maximizes its profit with
respect to its own price. Determine equilibrium values of price, quantity, and profit for each firm.
(c) Consider the following game:

Player 2

D E F
Player

A 7,6 5,8 0,0


1

B 5,8 7,6 1,1

C 0,0 1,1 4,4

(i) Find the pure-strategy Nash equilibrium (if any).


(ii) Find the mixed-strategy Nash equilibrium in which each player randomizes over just the first
two actions.
(iii) Compute players’ expected payoffs in the equilibrium found in parts (a) and (b).

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