Sample Exam(4)

.pdf

School

University of Southern California *

*We aren’t endorsed by this school

Course

MISC

Subject

Economics

Date

Feb 20, 2024

Type

pdf

Pages

Uploaded by SuperGoatPerson992

Spring 2023 Version E 1 Player 2 Left Center Right Player 1 Up 14, 4 32, 6 18, 8 Middle 8, 22 12, 18 20, 17 Down 16, 14 8, 8 4, 4 Use the information in the game matrix above to answer questions #1 and #2. 1. If this is a simultaneous move game, the pure strategy Nash equilibrium is _____________ . a. (Up, Center) b. (Up, Right) c. (Middle, Left) d. (Middle, Right) e. (Down, Left) 2. If this is a sequential game where Player 1 moves first, the SPE is _____________. a. (Up, Center) b. (Up, Right) c. (Middle, Left) d. (Middle, Right) e. (Down, Left) 3. Use backward induction to find the SPE of the game depicted on the game tree shown above. Player 1’s payoffs are written first followed by Player 2’s payoffs. What is Player 1’s payoff in the SPE of this game? a. 2 b. 3 c. 4 d. 8 e. 10

Spring 2023 Version E 2 A consumer has utility 𝑢𝑢 ( 𝐼𝐼 ) = √𝐼𝐼 and income $1,600. When sick, the consumer must go to the doctor, which costs a whopping $1,150 without insurance. If the consumer goes to the gym, the probability of getting sick is 20%, but if she does not go to the gym, the probability of getting sick is 80%. The cost of going to the gym is $150. An insurance company is offering a health insurance plan with a premium of $230 and a co-pay of $110 (the consumer pays the $110 copay only if she goes to the doctor). Use this information to answer #4 and #5. 4. The consumer’s expected utility from purchasing insurance and going to the gym is a. 31.6 b. 33.3 c. 37.0 d. 34.6 e. 34.9 5. Given this insurance contract with cost-sharing, the $110 copay a. Fixes the moral hazard problem. b. Fixes the adverse selection problem. c. Is too high and prevents people from purchasing insurance. d. Is too low to fix the adverse selection problem. e. Is too low to fix the moral hazard problem. Firm 1 and Firm 2 are Stackelberg competitors in the market for popsicles. Firm 1 is the leader and Firm 2 is the follower. Each firm has the same cost of producing popsicles, such that 𝐶𝐶 ( 𝑞𝑞 1 ) = 0.4 𝑞𝑞 1 and 𝐶𝐶 ( 𝑞𝑞 2 ) = 0.4 𝑞𝑞 2 . Market demand for popsicles is given by 𝑃𝑃 = 10 – 0.2 𝑄𝑄 , where the market quantity is equal to the sum of the popsicles produced by each firm ( 𝑄𝑄 = 𝑞𝑞 1 + 𝑞𝑞 2 ). Use this information to answer questions #6, #7, and #8. 6. What is Firm 2’s best response function? a. 𝑞𝑞 2 = 24 − 0.5 𝑞𝑞 1 b. 𝑞𝑞 2 = 48 − 2 𝑞𝑞 1 c. 𝑞𝑞 2 = 12 − 0.25 𝑞𝑞 1 d. 𝑞𝑞 2 = 26 − 0.5 𝑞𝑞 1 e. 𝑞𝑞 2 = 50 − 𝑞𝑞 1 7. What is the market price of popsicles in the SPE of this game? a. $5.20 b. $3.60 c. $2.80 d. $2.50 e. $0.40 8. Now suppose the firms described above competed on price in a Bertrand competition model. What is the market price of popsicles in equilibrium? a. $5.20 b. $3.60 c. $2.80 d. $2.50 e. $0.40

Spring 2023 Version E 3 9. The market for beachballs is currently dominated by one firm – the Incumbent. Consider the entry- deterrence game depicted above. Payoffs for Player 1 – Potential Entrant are written first and payoffs for Player 2 – Incumbent are written second. Which of the following statements is true? a. If X > 800, the threat is credible, and the players will receive (300, 500) in the SPE. b. If X > 500, the threat is credible, and the players will receive (300, 500) in the SPE. c. If X > 300, the threat is credible, and the players will receive (-100, X) in the SPE. d. If X > 500, the threat is credible, and the players will receive (100, 800) in the SPE. e. If X > 500, the threat is not credible, and the players will receive (100, 800) in the SPE. 10. Suppose that surf boards can be divided into two groups: high-quality and low-quality. Producing a high- quality surfboard costs MC H = $300 and producing a low-quality surfboard costs MC L = $200. Surfers would be willing to pay $800 for a high-quality board and only $400 for a low-quality board; however, they are unable to observe the quality of the board before purchasing it. Firms that produce high-quality boards would like to offer a warranty to consumers only if it can be used a credible signal of quality. Consumers are not willing to pay extra for a warranty. The cost of the warranty to the high-quality firms is $50 per year and the cost of the warranty to the low-quality firms is $100 per year. In equilibrium, a warranty can be used as a credible signal of the surfboard’s quality if a. 2 ≥ y* ≥ 8 b. 2 ≥ y* ≥ 6 c. 4 ≥ y* ≥ 6 d. 4 ≥ y* ≥ 8 e. 5 ≥ y* ≥ 10 11. A salesperson is working to sell cars. The number of cars that she will sell depends on her effort “e” and her luck. Given her effort, she will sell four cars (Q = 4) with probability 4e, and she will sell only one car (Q = 1) with probability (1 – 4e). Her personal cost of effort is 200e 2 . The dealership pays her a wage b for each car sold. The salesperson is risk-neutral, and wants to maximize her expected utility, which is her expected income minus her effort cost. If the dealership pays b=5, how many cars should they expect to sell? a. 1 b. 2.5 c. 2.8 d. 3.55 e. 4 1 Potential Entrant Enter Stay Out 2 Incumbent (100, 800) High Prices Low Prices (300, 500) (-100, X)

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version