1. Many countries have \"most favored nation\" (MFN) trade deals with other countries which helps to facilitate trade. The MFN status _h_as_to_ be renewed every so often as part of trade deal negotiations. Suppose that the U.S. and Canada, two major trading partners, are negotiating a new trade deal. You can think of this using game theory as illustrated by the payoff matrix below. Canada Don't renew Renew MFN United Don't renew States Renew MFN What is the payoff to the United States is it picks \"don't renew\" and Canada picks \"don't renew?\" a. 55 b. 75 c. 35 d. not enough information 2. (continued) One of the potential outcomes is the best for the two countries a_s__aw_ho_|ein_the sense that it maximizes the total combined payoff. What is that outcome? 3. both choose to renew MFN b. both choose to not renew MFN c. the U.S. renews MFN and Canada does not d. Canada renews MFN and the U.S. does not 3. A dominant strategy is a strategy that 3. results in the highest payoff for all parties. b. has a higher payoff than alternative strategies some of the time and lower payoff than alternative strategies the rest of the time. c. has a lower payoff than any other strategy, no matter what the other player does d. has a higher payoff than any other strategy, no matter what the other player does 4. When firms have agreements among themselves on the quantity to produce and the price at which to sell, we refer to their form of organization as a a. Nash arrangement b. cartel c. monopolistically competitive oligopoly d. perfectly competitive oligopoly 5. In 2011 the European Commission fined Proctor & Gamble and Unilever 315 million euros for agreeing to fix the price of laundry detergent in eight countries. An economist would say that the agreement illustrated a. merging b. colluding c. using legal strategies to increase profit d. none of the above strategies: cooperate by cutting back production so that supply is tight and the price is high or cheat by increasing production. The payoffs in the table show profits for each scenario. Exxon Cooperate Cheat Cooperate 800, 800 400, 1000 h II S e Cheat 1000, 400 600, 600 What is Shell's best response and associated payoff if Exxon cheats? a. cooperate, 400 b. cheat, 600 c. cooperate, 800 d. cheat, 800 7. Suppose that oil is produced by 10 countries, each of which produces 10 million barrels of oil a day (MBD) for a total 100 MBD. The world price of oil at this quantity is $36 per barrel, so each country earns $360 million a day. World Price (per barrel) World Quantity (M39) 3750 n 4750 __ Suppose that these countries form a cartel where each country agrees to produce 8 MBD. This works until one day one of the cartel members cheats by secretly pushing its production back to 10 MBD. As a result, revenue per country for the non-cheating countries, a. decreases from $400 million to $380 million a day b. decreases from $360 million to $288 million a day c. increases from $400 million to $500 million a day d. remains unchanged at $380 million a day 8. The table below shows the demand schedule for 350mL cans of cola which are manufactured by two different firms. Suppose the two firms collude and form a cartel. What price will the cartel charge in this market if the marginal cost of production is $3/can? (They can only pick one of the options in the table.) 9. Duopoly quantity game. Seagate and Western Digital (WD) run a cartel producing identical 1 TB hard drives. The demand for hard drives is (1 = 17 P. They both have MC = 2 and no fixed cost so ATC = 2. You can verify that together the rms maximize their (combined) prot by each making 3.75 hard drives. What profit does Seagate make with this cartel agreement? 5 10. (continued) Is the cartel agreement a Nash equilibrium? 3. yes b. no, Seagate wants to decrease production c. no, Seagate wants to increase production d. no, Seagate does not want to change production 11. (continued) Suppose that the cartel falls apart after the CEO of Seagate and the CFO of Western Digital get into a fight over whose homemade BBQ sauce tastes better. The companies are now very angry at each other and cannot cooperate. Western Digital ends up producing 5 hard drives. What is Seagate's best response? hard drives. (The answer is a whole number between 4 and 8, inclusive, so my suggestion is to calculate Seagate's profit for each option. You can use a table and/or spreadsheet organize your work.) 12. What causes the labor demand curve to shift? changes in productivity changes in wages changes in output prices 13. You run a fried chicken restaurant in Kentucky and can hire labor at a wage of SZ/min a competitive labor market. You don't have any costs aside from the labor because, like Joe Exotic, you get free expired meat from a grocery store. I won't tell your customers. The chicken sells for $1.50/piece in a competitive fried chicken market. The production function is shown in the following table: What is the marginal product of the 3rd hour of labor? pieces of chicken 14. (continued) Based on the table how many hours of labor should be hired in_o_r_d_e_r_to maximize profit? a.1 b.2 c.3 d.4 15. A competitive firm sells its output for $45 per unit. The marginal product of the 30th worker is 4 units of output per day; the marginal product of the 315t worker is 3 units of output per day. The firm pays its workers a wage of $150 per day. a. for the 315t worker, the marginal profit is $135 b. for the 30th worker, the value of the marginal product of labor is $600 c. for the 30th worker, the marginal profit is 5180 d. none of the above is correct _16. Bob White argues that if his wage went up from SID/hour to $20/hour he would still be able to pay rent and feed his family even if he worked half as many hours. So, if his wage increased he would want to work less. What is strange about Bob White's labor supply curve? a. it is very elastic b. it is very inelastic c. it slopes down d. it is vertical 17. Ronald Reagan claims that his tax reform plan will incentivize businesses to invest in new equipment and the new equipment will help raise productivity for workers. Assume he is right. How will the higher level of productivity impact wages and employment? a.w.L,LT b.wi,LJ, c.wT,LT d.wT,LJ. 18. Europe has become more economically integrated over the past few decades and its economists have been interested in how this has impacted wages. As one example, Germany gave many Czech workers who live near the border work permits so they could apply for jobs in Germany. What does our model predict this did to wages and labor hired in Germany? a. w l, L 'l' b. w L]. J. c. w T,L T d. w T,L J. 19. Every semester there is an active market for engineering tutors as students scramble to master difficult concepts before exams. You gathered the data on wages and labor supplied in the table below. What would explain this pa'rn? 2m a. demand increased and supply increased b. demand increased and supply decreased c. demand decreased and supply increased d. demand decreased and supply decreases 20. Lochner and the minimum wage. This question involves the labor market for bakers in New York. Suppose that the bakeries all sell bread in a competitive labor market for $2lloaf and the MPL and labor supply are described by these equations: MPL = 3 L where L is the number of hours of labor L5 = 2w where w is the wage per hour Find the $ value of the MPL (VMPL) function and then the equilibrium wage and amount of labor hired. What is the equilibrium wage? 5 {hour 21. (continued) The legislature was unhappy about low incomes for bakers so they instituted a minimum wage. Suppose the minimum wage was SS/hr. How many hours of labor are now demanded with the minimum wage? Ln = hours 22. (continued) An economist is surprised because he expected total income to fall when the wage rose. In other words he thought that the labor demand curve was very but it turned out to be more a. elastic, inelastic b. inelastic, elastic