Question #1 (19 points)
Consider a firm operating in a perfectly competitive industry. The firm has the following Ushaped cost curves:
Suppose that the market price is currently $13 and that the above firm is maximizing profits.
a. Should this firm stay open or shut down temporarily in the short-run? Explain clearly how
you know this. Be precise. (5 points)
Question #1 continues on the next page.
b. Now suppose that a major earthquake puts many of the firms in this market out of business
while leaving the above firm unaffected. Enough firms are left for the industry to still be
perfectly competitive. What will happen to this firm’s price and quantity after the earthquake
in order to continue to maximize profits in the short run? Why? Explain clearly and be precise.
c. Assuming that the above firm is an average firm in this industry, what will happen to this
firm’s price, quantity, and profit in the long run? Explain and illustrate below. Be precise and
concise in terms of explaining and illustrating the entire process to the long-run state. What will
be the market price when the industry is in long-run equilibrium state? (8 points)
Question #2 (12 points)
Airlines often find themselves in price wars. Consider the following game: Delta and United are
the only two airlines flying the route from Houston to Omaha. Each firm has two strategies: charge
a high price or charge a low price. The payoff matrix is below.
a. What is the dominant strategy for each firm? Explain how you know this. (4 points)
b. What is the equilibrium of this game? Explain how you determined that this was equilibrium.
c. Is there a better outcome than the one you selected in part (b)? Why don’t the firms end up at
this other outcome? Explain. Be very clear. (4 points)
356 CHAPTER 14 | Oligopoly: Firms in Less Competitive Markets
Copyright © 2017 Pearson Education, Inc.
The following appeared in an article in the Wall Street Journal: “Last week, true to discount roots dating
to 1971, Southwest [Airlines] launched a summer fare sale on domestic flights, with one-way prices as
low as $49. As in the past, major competitors were forced to follow suit.” Why would other airlines be
“forced” to follow Southwest’s fare decrease? Does your answer change if you learn that this fare
decrease took place during an economic recession, when incomes and the demand for airline travel were
falling? Briefly explain.
Source: Mike Esterl, “Southwest Airlines CEO Flies Uncharted Skies,” Wall Street Journal, March 25, 2009.
The airline industry is an oligopoly, and as game theory demonstrates, the other airlines were “forced”
into lowering their fares in order to compete with Southwest. By matching Southwest’s lower fares, the
other airlines were choosing the best strategy for maximizing profits given Southwest’s strategy. Your
answer would not change if the fare decrease took place during a recession because the airlines would still
be choosing the best strategy given Southwest’s strategy. It is particularly difficult for airlines to avoid
price cutting during a recession, however, because demand has declined and a failure to match
competitors’ price cuts would likely result in planes flying with many empty seats.
Airlines often find themselves in price wars. Consider the following game: Delta and United are the only
two airlines flying the route from Houston to Omaha. Each firm has two strategies: charge a high price or
charge a low price.
a. What (if any) is the dominant strategy for each firm?
b. Is this game a prisoner’s dilemma?
c. How could repeated playing of the game change the strategy each firm uses?
a. A dominant strategy is a strategy in which a player is better off playing regardless of which
strategy the other player chooses. To analyze Delta’s strategy: Suppose Delta knew that United
was going to charge a high price. In that case, Delta could also charge a high price and receive a
payoff of $20,000, or it could charge a low price and receive a payoff of $30,000. Clearly, Delta
would be better off charging a low price if it knew United was going to charge a high price. Now
suppose that Delta knew that United was going to charge a low price. In that case, Delta could
charge a high price and receive a payoff of í$10,000, or it could charge a low price and receive a
payoff of $0. Clearly, Delta would be better off charging a low price if it knew United was going
to charge a low price. Because Delta’s best strategy is to charge a low price regardless of what
United does, charging a low price is a dominant strategy for Delta. To analyze United’s strategy:
Suppose United knew that Delta was going to charge a high price. In that case, United could also
charge a high price and receive a payoff of $20,000 or it could choose a low price and receive a
payoff of $30,000. Clearly, United would be better off charging a low price if it knew Delta was
going to charge a high price. Now suppose United knew that Delta was going to charge a low
Question #3 (16 points)
A monopolist is deciding how to allocate output between two geographically separated markets
(East Coast and Midwest). The demand curves for each of the two markets are as follows:
East Coast (Market #1): Midwest (Market #2):
The marginal cost (MC) in each market is $3.
a. If the monopolist is allowed to price discriminate, calculate the profit maximizing price (P)
and quantity (Q) in each market. (6 points)
b. Based on the prices you found in part (a), what can you say about the elasticity of demand in
the East Coast market relative to the Midwest market? No new calculations needed here. Just
explain in words. Be precise and concise. (5 points)
Question #3 continues on the next page.
c. Suppose your friend says that the type of price discrimination that this monopolist is practicing
is great because with this type of discrimination there is no deadweight loss. Do you agree or
disagree with your friend? Explain why. You may use graphs to support your explanation. (5
Question #4 (24 points)
Consider a firm that operates in a monopolistically competitive industry. The firm is currently
in the short-run and is maximizing its profit. Price is equal to $60 and its total revenue is equal
to $1,200. Average fixed cost is equal to $25 and total cost is equal to $800.
a. In the space below, draw the firm’s demand, marginal revenue, marginal cost, average
variable cost, and average total cost curves. Also shade in the firm’s total economic profit or
loss in your graph. Assume that all cost curves have the usual U-shapes and the demand and MR
curves are downward sloping and make sure they are all consistent with the data above and with
each other. Label the axes and all relevant points, such as values for P, Q, ATC, and AVC on
your graph. Be precise and label each curve clearly. (12 points)
b. Should the firm continue to operate or shut down temporarily in the short-run? Explain how
you know this. (4 points)
Question #4 continues on the next page.
c. Redraw your graph from part (a) below (you can leave out the AVC curve in your graph
below). On this same graph illustrate the movement from the short-run to the long-run for
this firm. You need to show on the same graph what happens to the firm’s price, output, and
economic profit as we move from the short-run to the long-run. You can use P2 and Q2 (not
actual numbers) to indicate the new price and output levels. Also make sure to denote any
changes in your curves, such as D2
. Be clear and provide a brief explanation for
your graph. (8 points)
Question #5 (10 points)
Briefly discuss one way in which the current social safety net program in the U.S. has worked to
help assist individuals or families during the pandemic and one way in which the current safety
net program has not worked well to help individuals and families in need. You can refer to the
article “Why the Safety Net Might Not Respond as Effectively to Covid-19 As it Should” which
we discussed in class and which you can find on moodle.
Question #6 (19 points)
Consider an economy defined by the following functions (assume prices are fixed):
S = -760 + 0.15Yd
Ip = 320
G = 350
T = 200
X = 180
IM = 60 + 0.1Y
a. Find the aggregate expenditure (AEp) function for this economy, calculate the equilibrium
level of GDP (Ye
), and graph your AEp function below. Show your work and label all axes,
intercepts, and other relevant points (12 points)
Question #6 continues on the next page.
b. Calculate the level of savings at the equilibrium level of output. (4 points)
c. Now suppose that income (GDP or Y) in this economy rises by $1 (starting at any initial
level). (3 points) (No calculation needed to report the changes)
i. By how much will the level of spending on all consumption goods change?
ii. By how much will the level of spending on imports change?
iii. By how much will the level of spending on domestic goods change?
End of the exam. Have a great weekend!
Question 1 /19
Question 2 /12
Question 3 /16
Question 4 /24
Question 5 /10
Question 6 /19
The United States is home to probably the most infamous and productive chronic executioners ever. Names, for example, Ted Bundy, Gary Ridgeway, and the Zodiac Killer have become easily recognized names because of the awful idea of their wrongdoings. One of the most productive chronic executioners in American history is John Wayne Gacy. Nicknamed the Killer Clown as a result of his calling, Gacy assaulted and killed in any event 33 adolescent young men and youngsters somewhere in the range of 1972 and 1978, which is one of the most noteworthy realized casualty tallies. Gacy's story has become so notable that his wrongdoings have been included in mainstream society and TV shows, for example, American Horror Story: Hotel and Criminal Minds. Measurable science has, and keeps on playing, a significant function in the illuminating of the case and ID of the people in question. John Wayne Gacy's set of experiences of sexual and psychological mistreatment was instrumental in arousing examiner's curiosity of him as a suspect. John Wayne Gacy was conceived on March 17, 1942, in Chicago, Illinois. Being the main child out of three youngsters, Gacy had a stressed relationship with his dad, who drank intensely and was regularly damaging towards the whole family (Sullivan and Maiken 48). In 1949, a temporary worker, who was a family companion, would pet Gacy during rides in his truck; in any case, Gacy never uncovered these experiences to his folks because of a paranoid fear of reprisal from his dad (Foreman 54). His dad's mental maltreatment proceeded into his young grown-up years, and Gacy moved to Las Vegas where he worked quickly in the rescue vehicle administration prior to turning into a morgue specialist (Sullivan and Maiken 50). As a morgue chaperon, Gacy was intensely engaged with the treating cycle and conceded that one night, he moved into the final resting place of an expired young kid and stroked the body (Cahill and Ewing 46). Stunned at himself, Gacy re-visitations of Chicago to live with his family and graduates from Northwestern Business College in 1963, and acknowledges an administration student position with Nunn-Bush Shoe Company. In 1964, Gacy is moved to Springfield and meets his future spouse, Marlynn Myers. In Springfield, Gacy has his subsequent gay experience when a colleague unsteadily performed oral sex on him (London 11:7). Gacy moves to Waterloo, Iowa, and starts a family with Myers. In any case, after routinely undermining his better half with whores, Gacy submits his initially known rape in 1967 upon Donald Vorhees. In the coming months, Gacy explicitly mishandles a few different young people and is captured and accused of oral homosexuality (Sullivan and Maiken 60). On December 3, 1968, Gacy is indicted and condemned to ten years at the Anamosa State Penitentiary. Gacy turns into a model prisoner at Anamosa and is allowed parole in June of 1970, an only a short time after his condemning. He had to migrate to Chicago and live with his mom and watch a 10:00PM time limitation. Not exactly a year later, Gacy is accused again of explicitly attacking a high school kid however the adolescent didn't show up in court, so the charges were dropped. Gacy was known by numerous individuals in his locale to be an enthusiastic volunteer and being dynamic in network governmental issues. His part as "Pogo the Clown" the jokester started in 1975 when Gacy joined a neighborhood "Chipper Joker" comedian club that routinely performed at raising support functions. On January 3, 1972, Gacy submits his first homicide of Timothy McCoy, a 16-year old kid going from Michigan to Omaha. Guaranteeing that McCoy went into his room using a kitchen blade, Gacy gets into an actual quarrel with McCoy prior to cutting him consistently in the chest. Subsequent to understanding that McCoy had absentmindedly strolled into the stay with the blade while attempting to plan breakfast, Gacy covers the body in his slither space. Gacy conceded in the meetings following his capture that executing McCoy gave him a "mind-desensitizing climax", expressing that this homicide was the point at which he "understood passing was a definitive rush" (Cahill and Ewing 349). Right around 2 years after the fact, Gacy submits his second homicide of a unidentified young person. Gacy choked the kid prior to stuffing the body in his wardrobe prior to covering him (Cahill 349). In 1975, Gacy's business was developing rapidly and his hunger for youngsters developed with it. Gacy regularly tricked youngsters under his work to his home, persuading them to place themselves in binds, and assaulting and tormenting them prior to choking them (Cahill 169-170). The majority of Gacy's killings occurred somewhere in the range of 1976 and 1978, the first of this time occurring in April 1976. A significant number of the adolescents that were killed during this time were covered in a slither space under Gacy's home. For the rest of the killings, Gacy confessed to losing five bodies the I-55 extension into the Des Plaines River; in any case, just four of the bodies were ever recuperated (Linedecker 152). In December 1978, Gacy meets Robert Jerome Piest, a 15-year old kid working at a drug store and extends to him an employment opportunity at Gacy's firm. Piest educates his mom regarding this and neglects to restore that night. The Piest family records a missing individual's report and the drug specialist advises police that Gacy would in all probability be the man that Jerome addressed about a work. When addressed by the police, Gacy denied any association in Piest's vanishing. Nonetheless, the police were not persuaded, and Gacy's set of experiences of sexual maltreatment and battery incited the police to look through his home. Among the things found at Gacy's home were a 1975 secondary school class ring with the initials J.A.S., different driver's licenses, cuffs, attire that was excessively little for Gacy, and a receipt for the drug store that Piest had worked at. Throughout the following hardly any days, examiners got various calls and tips about Gacy's rapes and the baffling vanishings of Gacy's representatives. The class ring was in the end followed back to John A. Szyc, one of Gacy's casualties in 1977. Futhermore, after analyzing Gacy's vehicle, agents found a little group of strands looking like human hair, which were shipped off the labs for additional examination. That very night, search canines were utilized to recognize any hint of Piest in Gacy's vehicle, and one of the canines demonstrated that Piest had, truth be told, been available in the vehicle. On December 20, 1977, under the pressure of steady police reconnaissance and examination, Gacy admits to more than 30 killings and illuminates his legal advisor and companion where the bodies were covered, both in the slither space and the stream. 26 casualties were found in the slither space and 4 in the waterway. Gacy is captured, indicted for 33 killings, and condemned to death by deadly infusion. He endeavored a madness request however was denied, and was executed on May 10, 1994. There were a few scientific markers that examiners used to attach Gacy to the homicides. A portion of these include fiber investigation, dental and radiology records, utilizing the disintegration cycle of the human body, and facial recreation in recognizing the people in question. Examiners discovered strands that took after human hair in both Gacy's vehicle and close to the slither space where the bodies were covered. Notwithstanding these hair tests, specialists likewise discovered filaments that contained hints of Gacy's blood and semen in a similar territory. Blood having a place with the casualties was found on a portion of the strands, which would later straightforwardly attach Gacy to the wrongdoings. The filaments in Gacy's vehicle were investigated by legal researchers and coordinated Piest's hair tests. Moreover, the pursuit canines that discovered that Piest had been in Gacy's vehicle demonstrated this by a "passing response", which told specialists that Piest's dead body had been within Gacy's vehicle. Out of Gacy's 33 known casualties, just 25 were ever definitively recognized. A considerable lot of Gacy's casualties had comparative actual portrayals and were along these lines hard to recognize by simply asking people in general. To distinguish the people in question, examiners went to Betty Pat Gatliff, a pioneer in scientific science and facial recreation. Facial remaking is the way toward reproducing the facial highlights of a person by utilizing their remaining parts. Certain facial highlights, for example, facial structures, nasal structure, and generally face shape can be valuable in distinguishing a casualty even long in the afterlife. By utilizing these highlights, and with the assistance of program, measurable specialists can make a picture of an individual's face, which is instrumental in recognizing casualties after their bodies have rotted. Facial remaking should be possible in a few measurements. Two-dimensional facial reproductions is utilized with skull radiographs and depend on pre-passing photos and data. Be that as it may, this isn't really ideal in light of the fact that cranial highlights are not generally obvious or at the correct scale (Downing). So as to get a sensible and more precise portrayal of the casualty's face, a craftsman and a legal anthropologist are typically important (Downing). Three-dimensional facial recreation is finished by models or high goal, three-dimensional pictures. PC programs can make facial reproductions by controlling examined photos of the remaining parts and use approximations to reproduce facial highlights. These will in general deliver results that don't look fake (Reichs and Craig 491). At times, specialists will utilize a strategy called superimposition as a method for facial remaking. Shockingly, it's anything but a usually utilized strategy, as it expects specialists to have some information about the personality of the remaining parts they are managing. By superimposing a photo of a person over the skeletal remaining parts, examiners can check whether the facial highlights line up with the anatomical highlights, permitting them to distinguish a casualty. On account of John Wayne Gacy's casualties, specialists had the option to utilize facial reproduction to distinguish nine of the bodies found in the creep space. The accompanying realistic shows the facial recreations of these nine casualties: Since facial recreation was insufficient to recognize the entirety of the v>GET ANSWER