Course: Intermediate Microeconomics (Mock exam)
Student ID: Mark (Do not fill)
Q1. Define monopsony and explain how it differs from perfect competition in the labor market.
(10 points)
Q2. A monopolist faces a demand curve given by P = 100 - Q, where P is price and Q is
quantity. The monopolist has a constant marginal cost of $20 per unit. Calculate the profit-
maximizing level of output, price, and total profit (10 points).
To maximize profits as a monopolist, the firm sets marginal revenue equal to marginal cost. The
marginal revenue curve for a monopolist is twice as steep as the demand curve. The marginal
revenue function in this case is MR = 100 - 2Q. Setting MR = MC, we find:
100 - 2Q = 20
80 = 2Q
Q = 40
Substituting the quantity back into the demand curve, we find the price:
P = 100 - 40
P = 60
Total revenue is price multiplied by quantity, which is:
TR = P * Q
TR = 60 * 40
TR = $2400
Total cost is given by the constant marginal cost times the quantity produced:
TC = $20 * 40
TC = $800
Therefore, total profit is total revenue minus total cost:
Profit = TR - TC
Profit = $2400 - $800
Profit = $1600
So, the profit-maximizing level of output is 40 units, the price is $60 per unit, and the total profit
is $1600.
Q3. You manage a plant that mass-produces engines by teams of workers using assembly
machines. The technology is summarized by the production function q = 5 KL, where q is the
number of engines per week, K is the number of assembly machines, and L is the number of
labor teams. Each assembly machine rents for r = $10,000 per week, and each team costs w =
$5000 per week. Engine costs are given by the cost of labor teams and machines, plus $2000 per
engine for raw materials. Your plant has a fixed installation of 5 assembly machines as part of its
design.
a. What is the cost function for your plant—namely, how much would it cost to produce q
engines? What are average and marginal costs for producing q engines? How do average
costs vary with output? (15 points)
b. How many teams are required to produce 250 engines? What is the average cost per engine?
(15 points)
Q4. Suppose you are the manager of a watchmaking firm operating in a competitive market.
Your cost of production is given by C = 200 + 2q2, where q is the level of output and C is total
cost. (The marginal cost of production is 4q; the fixed cost is $200.)
a. If the price of watches is $100, how many watches should you produce to maximize
profit? (10 points)
b. What will the profit level be? (10 points)
Q9. Two firms are in the chocolate market. Each can choose to go for the high end of the
market (high quality) or the low end (low quality). Resulting profits are given by the
following payoff matrix:
a. What outcomes, if any, are Nash equilibria? (10 points)
b. If the managers of both firms are conservative and each follows a maximin strategy,
what will be the outcome? (10 points)
Q11. Two major networks are competing for viewer ratings in the 8:00−9:00 PM and
9:00−10:00 PM slots on a given weeknight. Each has two shows to fill these time periods
and is juggling its lineup. Each can choose to put its “bigger” show first or to place it
second in the 9:00–10:00 PM slot. The combination of decisions leads to the following
“ratings points” results:
a. Find the Nash equilibria for this game, assuming that both networks make their
decisions at the same time. (10 points)
b. If each network is risk averse and uses a maximin strategy, what will be the resulting
equilibrium? (10 points)
