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Econ300: E Final exam

 

This is an open-book exam. You can use any references form lectures, text book and handwritings. But internet access is not permitted. If you have any questions feel free to ask. To receive credit, you must show your work. The exam will be last from 1:00 PM until 2:50. After you finish the exam, submit your paper via email: [email protected].

 

1. Read carefully and provide your answer.

Explain why two firms in a duopoly market face a downward sloping demand curve not like firms in competitive markets. (10)

 

 

2. Read carefully and provide your answer.

What is the key factor that can explain the fact: LMC curve is always flatter then SMC curves for every factory size under the reasonable assumptions.

: We are assuming a perfect competitive market. (20)

 

 

3. Read carefully and provide your answer.

Let two firms in duopoly market are having such profit functions:

Explain each variable in two functions and assume they are doing stackelberg game. Calculate the result of the game and explain why the result is Nash equilibrium. You should show exact steps of your solving with detailed explanations. (20)

 

 

 

 

4. Read carefully and provide your answer. (Difficult)

There are two firms selling the same type of toys. Firm A is the unique firm in her market A, so has the huge power in the market. This is the same for firm F too, but the size of her market F is much smaller than market A. At the beginning of this economy, each firm only can do their economic behaviors in each market. But, Lisa, CEO of firm A is now trying to do a hostile M&A to eat up the other side market. Since, Firm A is much larger than firm F, Lisa is now sure that the M&A will success with 100% probability. Let assume consumers in each market has different type of demand aspects, but we can clearly find that demanders who are in the same market is sharing some degrees of preference. If firm A is hiring audit agents, so she can know almost everything about her current and potential consumers, what would that firm A do to maximize her profit? (20)