Scribd
Upload
17 views4 pages

MN2028 Exam Paper - May 2023 (X)

Uploaded by

Araf Muhammd
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
17 views4 pages

MN2028 Exam Paper - May 2023 (X)

Uploaded by

Araf Muhammd
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 4

~~MN3028 ZA d0

MN2028

MN2028 Managerial economics

Candidates should answer SIX of the following TEN questions: all FOUR from
Section A (12.5 marks each) and TWO from Section B (25 marks each).
Candidates are strongly advised to divide their time accordingly.

Please see questions on the following page.

© University of London 2023

Page 1 of 4 D0
SECTION A

Answer all four questions from this section (12.5 marks each).

1. Two risk neutral players enter a game in which they can win a prize, P. Their
probability of winning depends on the amount of money they spend. Player 1 is the
high ability player and wins with probability p1 = αx1/(x1+x2), where x1 and x2 are the
amounts of money spent by player 1 and player 2 respectively and α>1.

a) Find the Nash equilibrium spending levels.


b) What is player 1’s probability of winning at equilibrium?

2. Consider a profit-maximising monopoly with zero marginal cost. What happens to


revenue if it reduces price? Explain your answer.

3. Charlie and Thomas must divide £9. Charlie is the first to propose a division. If
Thomas agrees, the game ends. If Thomas disagrees, the pot shrinks to £8 and
he proposes a new division. If Charlie rejects Thomas’ offer, the pot becomes £3
and Charlie gets to propose. If Thomas rejects, the game ends and neither gets
anything. Find the subgame perfect equilibrium.

4. Two firms sell an identical product. Both firms have the same constant marginal
cost, c. Firm 1 chooses its price first and then Firm 2 chooses. What is Firm 1’s
profit at the subgame perfect equilibrium? Explain your answer.

SECTION B

Answer two questions from this section (25 marks each).

5. A monopoly market consists of an equal number of Type A and Type B


consumers who buy at most one unit. The monopolist produces at zero cost. The
product is available this month and next month. Type A consumers are willing to
pay 12 this month and 10 next month. Type B consumers are willing to pay 9 this
month and 11 next month.

a) Suppose the monopolist can price discriminate. For each consumer type, state
when the product will be sold and at what price. Calculate the firm’s profits.
b) Suppose the monopolist cannot price discriminate but can charge different
prices in different time periods. State the monopolist’s optimal pricing. For
each consumer type, when will products be sold and at what price? Calculate
the firm’s profits.
c) Suppose the monopolist cannot price discriminate and must set the same
price in both periods. For each consumer type, when will products be sold and
at what price? Calculate the firm’s profits.

Page 2 of 4 D0
6. Consider the production function y = 3x1+x2, where y is units of output, and x1 and
x2 are units of input 1 and input 2 respectively.

a) If the unit input costs of input 1 and input 2 are equal, what are the conditional
demands for each input?
b) Assuming the unit input cost for both inputs equals 6, write down the long run
total cost function.
c) In the short run, x1 is fixed at 3. Draw a graph of the short run production
function with y as a function of x2.
d) What is the short run total cost function when x1 is fixed at 3 and the unit cost
of both inputs equals 6?
e) The output, y, is sold in a competitive market. What is the lowest price at
which the firm produces a positive quantity in the short run?
f) What is the lowest price at which the firm sells a positive quantity in the long
run?

7. Joanna has the intertemporal utility function U(c1,c2)=c1c2, where c1 are units of
consumption in period 1 and c2 are units of consumption in period 2. Let p1=1 and
p2=p1(1+π) be the unit price of consumption in period 1 and period 2, respectively.
Joanna’s income is m1 in period 1 and m2 in period 2. Joanna can borrow or lend
between periods 1 and 2 at the interest rate r.

a) Write down Joanna’s intertemporal budget constraint with c2 as a function of


c1, m1, m2, π and r.
b) Find c1 and c2 as a function of m1, m2, r and π.
c) If π=0.1, r=0.2, m1=10 and m2=120, what are c1 and c2?
d) If π increases to 0.2, what would c1 and c2 be? Does Joanna save or borrow
more, compared to part c)?

Page 3 of 4 D0
8. The probability a firm does well if an employee exerts effort is 0.8. The probability
the firm does well if the employee does not exert effort is 0.4. The employee does
not have any alternative way to earn money, and her effort cost is 10. The firm is
able to offer the employee an employment contract where she receives a payoff
of w if the firm does not do well and a payment of W if the firm does well. The
firm is constrained so that it cannot include any negative payments in the
employment contract.

a) What are the levels of w and W that the firm can offer that minimise expected
payments and induce the agent to exert effort? Show the analysis that
supports your answer.
b) When the firm does well, it generates revenues of 20. When it does not do well,
it generates revenues of 10. The only costs are payments made to the
employee. Will the contract described in part a) allow the firm to produce
efficiently? Discuss your answer.

9. William and Rachel are the only two bidders in an auction. They have private
valuations drawn independently from a uniform distribution on [160,240].

a) If William has a private valuation of 240, what is his optimal bid in a second
price auction? What is his expected equilibrium payoff?
b) If the auction were a first price sealed bid auction, what would William’s
optimal bid be? What is his equilbrium payoff in this case?

10. Explain the efficiency wage model including the minimum cost implementation
problem.

END OF PAPER

Page 4 of 4 D0

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy