Intermediate Microeconomics Test Questions
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amrat meenaIntermediate Microeconomics Test Questions
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amrat meenaCommon questions
Powered by AIIn mixed-strategy Nash equilibrium, each player assigns probabilities to choosing among available strategies such that no player can improve their expected payoff by unilaterally changing their strategy. For the given payoff matrix where Player 1 has strategies A, B and Player 2 has E, F, we solve for probabilities by ensuring each player's payoffs are equalized across mixed strategies. This differs from pure-strategy Nash equilibrium where players select one strategy with certainty. In pure strategy, players may both play A,B or B,C under certain configurations . By comparison, mixed strategies offer each player variance, resulting in a probability distribution over feasible strategies rather than deterministic outcomes .
In Cournot equilibrium, each duopolist assumes the other's output as given and maximizes its profit accordingly. Using P = 100 - 0.5(X1 + X2), with cost functions C1 = 5X1 and C2 = 0.5X2^2, the Cournot equilibrium yields quantities X1 = 30, X2 = 20, price P = 85, and profits of 675 for Firm 1 and 650 for Firm 2. Under perfect cartel, firms act jointly to maximize total profit with X1 + X2 = 60, which allows them to set the monopoly price, resulting in higher joint profit but lower individual output. In Stackelberg competition, if Firm 1 leads, it can anticipate Firm 2's reaction to its output and optimize sequentially, leading to a higher output for Firm 1 (X1 = 40), lower for Firm 2 (X2 = 10), with profits 800 for Firm 1 and 400 for Firm 2, and price P = 80 .
Each firm in a differentiated duopoly determines its price reaction function based on its competitor's price, aiming to maximize individual profit. Given demand functions q1 = 88 – 4p1 + 2p2 and q2 = 56 + 2p1 – 4p2, and cost functions C1 = 10q1 and C2 = 8q2, firms simultaneously solve for prices p1 and p2 where their marginal revenues equal marginal costs. This results in each firm having a best-response curve or reaction function p1(p2) and p2(p1). Solving these simultaneous equations provides the equilibrium prices and then substituting back gives equilibrium quantities and profits for each firm, showing interdependence inherent in product differentiation .
A perfectly discriminating monopolist sets the price equal to the consumer's maximum willingness to pay for each unit, leading to Q = 25 - 0.5P. The monopolist's total cost function is C = 25 + 10Q, and profit maximization occurs when marginal revenue equals marginal cost. By solving, we find the equilibrium output as Q = 15, with corresponding profit calculated as follows: Revenue (15 units) = (Revenue - Cost) = (10 * 25 - 0.5*10^2) - (25 + 10*15). Profit before discrimination results in deadweight loss equal to the area between the demand curve and marginal cost from the monopolist's quantity to the competitive quantity. This loss is eliminated under perfect price discrimination, as the monopolist appropriates all consumer surplus as profit, leaving no deadweight loss .
A monopolist that practices third-degree price discrimination charges different prices in separate markets based on the elasticity of demand in each market. When demand curves are q1 = 110 - 2p1 and q2 = 35 - p2 with constant marginal costs at Rs.15, the monopolist maximizes profit in each market separately. This involves setting MR = MC in each market, which results in higher profits than if the monopolist charged a uniform price across both markets. This strategy extracts more consumer surplus and increases total profit compared to a uniform pricing strategy, where pricing is constrained by the market with more elastic demand .