303Micro, help.

6. A firm in a competitive output market is unsure of what the ultimate product price will be at the time she has to make her output decision. She believes that with probability .5 the price will be 2 and that with probability .5 it will be 4. If she acts so as to maximize expected profits she will make the same decision as she would if she knew with certainty that the product price would be 3. 7. Two finns consider entering a new market. The demand for the good is given by Q = 10 - p. The total cost of production for firm A is TCA(qA) = 4qA, while the cost function for firm B is TCB(qs) = 8qn. If the firms interact as Bertrand (price-setting) competitors firm A will be a monopolist and will charge a price of 8. Part II. Problems. Answer each part of each of the following problems. Remember to show all of your work. 8. (12 points) 100 individuals live in a market and possess utility functions defined over two goods, r and y. The utility function of each individual is given by U(x, y) = a + y. Each individual faces the same prices of the two goods, pr and py, each has an income of / = 1. and the price of good y is 1. There exists a large number of "potential" entrants into the industry, and each has a total cost function given by TC(q,) = 104, - 49+ (a) Define the market demand function for good r (remember that py = 1 and each indi- vidual has an income of 1). (b) Determine the number of firms that would produce the good a in a long-run competitive equilibrium (HINT: The correct answer to this question belongs to the set {0, 1, 2,...}).ANSWER 1, 2, and 3; then answer any 3 from 4-8. 1. Define and briefly explain the relevance to an intermediate microeconomic theory class of 10 of the following. NOTE: do only 10, if more than 10 are answered, only the first 10 will be graded. (50 points) a. limit pricing Smith b. cartel h. kinked demand (include diagram) C. cobweb theorem I. income effect (incl. diag.) j. Pareto d. maximin Laspeyre e. rectangular hyperbola 1. hiw of increasing cost (incl. diag.) third degree (incl. example) 2. Compare and contrast verbally and graphically the pricing and output decisions for a perfectly competitive firm, a monopolistically competitive firm, and oligopolist, and a monopolist. (30 points) 3. Using indifference curves, analyze the effects of a price change on a normal good and a Giffen good. Be specific and complete; define all terms. How does an inferior good differ--or does it? (30 points) ANSWER ANY 3 OF THE FOLLOWING 5 (#4-8). NOTE: Answer only 3; same rules apply as in #1. Each is worth 30 points. 4. Explain and derive graphically the firm's demand curve for a factor in the case of two variable factors. Also explain and derive the market demand for a factor of production. (30 points) 5. Explain thoroughly and demonstrate graphically the necessary conditions for the achievement of equilibrium in both exchange and production. NOTE: be careful. Define all terms. (30 points) 6. Identify verbally and graphically the feasible range of production first for the case of one variable factor and then for the case of two variable factors. Be specific and complete; define all terms. (30 points) 7. Do either A or B. Answer only 1; same rules as in #1. A. Explain carefully and derive graphically a backward bending supply of labor. Be careful. Explain completely. Define all terms. (30 points) OR B. Select either a negative income tax or an in-kind fringe benefit program. Analyze verbally and graphically the impact of the program you have chosen. Be careful. Explain your analysis thoroughly. Define all terms. (30 points) 8. A Company manufactures 2 types of wooden shipping crates (T, & T2). The profit on Type 1 is $20; Type 2, $12. Each crate must go through 2 production processes, A and B. In each production period, a total of 100 hours are available on production line A; a total of 120 hours on line B. Type 1 crates require 2 hours on line A and 4 hours on B. Type 2 requires 5 hours on line A and 3 hours on B.SECTION A - ANSWER ALL QUESTIONS IN THIS SECTION QUESTION ONE a) Explain five features of a free market Economy. (10 marks) b) Discuss five disadvantages of price mechanicsm. (10 marks) c) Define the law of diminishing marginal utility. (2 marks) d) The law of marginal utility does not apply in certain cases known as exceptions of these laws. Discuss at least four exceptions. (8 marks) SECTION B - ANSWER ANY TWO QUESTIONS IN THIS SECTION QUESTION TWO a) Gatheru and Kambu graduated from Nkubu University and instead of seeking employment, they set up a management consultancy. They have recently started to give business advice to their clients. Acting as consultants, they estimated the demand curve of a client's firm to be: AR=200-Q. Where AR is the average revenue in millions of shillings and Q is the output in units. Investigations of the client's firm's cost profile shows that marginal cost (MC) is given by MC=Q--280+211 (in millions of shillings). Further investigations show that the firms cost when not producing output is Shs. 10 million. Required. 1. The equation of total cost. (4 marks) ii. The equation of total Revenue. (3marks) ii. An express for profit. (2 marks) iv. The level of output that maximizes profit. (4 marks) v . The equation of marginal Revenue. (2 marks) b) State the relationship between total utility and marginal utility. (5 marks) QUESTION THREE a) An important post Keysian theory of consumption has been put forward by Modigliani and Ando which is known as lifecycle theory of consumption. Discuss the theory using a graph. ( 10 marks) b) Explain five factors responsible for wage differentials between occupants (10 marks) QUESTION FOUR a) Two suspects are charged with a joint crime and are held separately by the police. Each prisoner is told the following. If one prisoner confesses and other one does not, the former will be given a reward of 1 and the latter will receive a fine equal to 2. if both confess, each will receive a fine equal to 1 an if neither confesses, both will be set free. Required i. Show a pay off bi matrix. (8 marks) ii. Solve the game and show the Nash equilibrium. (4 marks) b) Explain four ways the government can influence the allocation of resources in a country. (8 marks)1. Unemployment is countercyclical, this means that when the GDP is . we should expect unemployment to be a) in a boom, in a boom as well b) increasing, in a boom c) in a boom, below its trend d) In a burst, in a trough 2. If in 2011 the real GDP was $1000 and the nominal GDP was $1250, and in 2012, they were $1000 and $800, respectively, the GDP deflator in 2011 is the GDP deflator in 2012, a) greater than b) lesser than c) equal than d) it is impossible to determine with the information given 3. If Robinson lives only one period and its indifference curves between consumption and labor become steeper for any level of labor (graphing labor on the x-axis). Which of the following is not true. a) Robinson will works less and consumes less b) There was an upward proportional shift of the production function c) Robinson has to be more compensated with consumption for every extra unit of labor d) Robinson tastes over consumption and labor have change 4. The production function is but the marginal productivity of labor is ) positive, negative b) increasing, decreasing c) decreasing, increasing d) always constant, difficult to predict 5. Consider a production function y=f(1)=A *15+B. With an increase in B, and fixing the level of labor, the marginal productivity and the productivity, y/, a) increases, does not change b) increases, increases c) does not change, decreases d) does not change, increases 6. Consider the infinite horizon budget constraint for a household, bo (1+Ryp +yl+ y2/(1+R)+ y3/(1+R)+ ....=cl+ c2/(1+R). .... In the aggregate economy, for some households, be >0, and c,y, for t >T. where T is some date in the future. While for other households, be *0, and cay, for t