Explain the attached questions
4- Suppose that two motorcycle manufacturers, Honda and Suzuki, are considering offering 10-year full coverage warranties for their new motorcycles. Although the warranties are expensive to offer, it could be disastrous for one firm if it does not offer a warranty while its competitor does. Let's assume the payoffs for the firms are as follows: Honda\\ Suzuki Offer Don't Offer Warranty Warranty Offer Warranty m 120, 10 Don't Offer Warranty 10, 120 50,50 (a) If the game is played once, what is the outcome? (b) Suppose the game is repeated three times. Will the outcome change from your answer in (a)? Explain. (c) Now, suppose the game is innitely repeated and Suzuki and Honda formed an agreement to not offer warranties to their customers. Each rm plans the use of a grim trigger strategy to encourage compliance with the agreement. At what level of 5 (discount factor] would Honda be indifferent about keeping the agreement vs. cheating on it? Explain. 5- Two firms have technologies for producing identical paper clips. Assume that all paper clips are sold in boxes containing 100 paper clips. Firm A can produce each box at unit cost of on = 56 whereas rm B {less efcient} at a unit cost of EB = 58. {i} Suppose that the aggregate market demand for boxes of paper clips is p = 12 012, where p is the price per box and C1 is the number of boxes sold. Solve for the Nash-Bertrand equilibrium prices P} and PE , and the equilibrium prots 11': and 1:5. Explain your reasoning! {iii Answer the previous question assuming that rm A has developed a cheaper production technology so its unit cost is now given by CA = $2. 25. Characteristics of monopolistic competition include all of the following EXCEPT a. Barriers to entry b. A relatively large number of sellers and buyers C. Small market share for each seller d. Differentiated products and advertising 26. Which of the following industries is the best example of monopolistic competition? a. Cotton b. local utility c. automobiles d. service stations 27. A firm in monopolistic competition maximizes profits by producing the quantity where Marginal revenue equals marginal cost b. price equals marginal cost c. marginal revenue equals average cost d. price equals average cost 28. The monopolistic competitor faces a Horizontal demand curve b. vertical demand curve c. downward-sloping demand curve d. upward-sloping demand curve 29. If firms in monopolistically competitive industries are currently earning economic profits in the short run, then in the long run we can expect a. Economic losses to occur as too many firms try to enter the industry b. Firms to earn normal profits since new firms will enter the industry C. Economic profits to persist d. none of the above 30. One important difference between monopoly and monopolistic competition is the a. Slope of the demand curve that the industry faces b. free entry in monopolistic competition c. greater restriction of output in monopolistic competition d. coincidence of the marginal revenue and demand curves in monopoly 31. Under monopolistic competition a firm's ability to influence the price of the product it sells arises because a. Sellers in the market have large market shares b. Sellers in the market have small market shares c. The product of each seller is differentiated from that of others d. Each seller sells a standardized product 32. For which market structure will the firm shut down in the short run if it is not able to cover its variable cost (that is, its operating loss is grater than its fixed cost)? a. Perfect competition b. monopolistic competition c. monopoly d. all of the above 3. The monopolistic competitor produces the output at which a. Price equals marginal cost b. Marginal revenue equals marginal cost C. There is allocation efficiency d. Average total cost is a minimum The perfectly competitive firm charges a price while the monopolist charges a price a. Equal to marginal revenue; equal to marginal cost b. Equal to marginal cost; greater than marginal cost C. Equal to marginal revenue; greater than marginal revenue d. band c Some monopolistic competitors earn positive economic profits in the long run because There are high barriers to entry in monopolistic competition b. Some firms have successfully differentiated their products from their competitors' products C. There is easy entry and exit d. band c e. none of the above4. (30 points) Consider the following game. There are ten dollars to divide. Two players are each required to simultaneously name an integer between 0 and 10. The player who names the higher number gets to keep the money. If they name the same number, the money is equally shared between them. (a) Describe the set of players /, the set of strategies {S,lien, and the payoff function fuiliEN. (b) Are there strategies that are strictly dominated? Demonstrate your reasoning. What are the resulting strategies after iterated elimination of strictly dominated strategies? (c) Find the best responses (correspondence) for each player. That is, find the strategies that maximize a player's payoff given what the other player does. (d) Find the Nash equilibria of the game. (e) Suppose now the game is changed. Whenever there is a tie, each player receives nothing. Answer the same questions in parts (b) and (c). Find the pure-strategy Nash equilibria of the game.1. (15 points) For the exercises below, transform the regression equation Yi = 60 +81Xli +$2X2i +pi so that you can use a t-statistic to test for the following restrictions. Show all your steps for full credit. a. (5 points) B1 = 1262 b. (5 points) B1 - 82 = 2 a) If we assume normality of u, then we know the exact distribution of B1, a t student b) If we do not assume normality of u but n is large, then we approximate the sampling distribution 3 2. (15 points) Consider the following model to explain CEO salaries in terms of various factors: salary = 30 + Blsales + $2mktval + 83ceoten + u, where: salary = 1990 compensation, $1000s; sales = 1990 firm sales, millions; mktval = market value, end 1990, mills; ceoten = years as ceo with company Next you perform the following regression: * R2 = 0.2013, SER = 529.67 a) (5 pts) What does each estimated coefficient on the individual variables (and constant term) mean quantitatively (do not worry about standard errors, as they are not given, or the measures of fit)? b) (5 pts) What is the forecasted salary of a CEO working in a firm with sales equal to 5,000 millions, market value equal to 10,000 millions, and 10 years of tenure? c) (5 pts) Eliminating the variable sales from your regression, the estimation regression becomes:" salary = 613.436 + .019sales + .023mktval + 12.703ceoten + u salary = 641.059 + .0369mktval + 11.525ceoten + u R2 = 0.184, SER = 533.58 Why do you think that the effect of mktval has changed now over part b. (very briefly describe)?Font Select . Paragraph Styles Editing Graph the following scenario. (Hint: the graph setup in question #8 is a good framework) For a real world example, consider the market for oil. The initial supply and demand curves would be at position 1 (p1). When the suppliers decide to collaborate and supply less oil for every price, this causes a backwards shift in the supply curve, to supply curve 2. This cuts the quantity supplied from quantity 1 (q1) to quantity 2 (q2] and raises the price paid for oil along demand curve 1. We can either shift the demand curve in to curve 2, maintaining previous price levels, but decreasing consumption even more, or we can shift our demand curve out to curve 3, maintaining previous levels of consumption but raising prices. Since there is a tradeoff between having steady prices or steady consumption, the consumers have to make a decision about which is more important to them. In the short run, they will probably decide to pay the higher prices to keep consumption steady (that is, they will shift out to curve 3), but if the prices stay high for a long time, they will start finding ways to economize, (thereby shifting in to curve 2]. 10. What terms are being defined? a. Situation in which the quantity supplied exceeds the quantity demanded for a good or service; price is above equilibrium price. Additional income derived from each additional unit of goods sold. Total Variable Costs divided by quantity sold, TVC/q- Total Fixed Costs divided by quantity sold, TFC/q. To maximize utility by making the most effective use of available resources, whether they be money, goods, or other factors. Costs which do not vary with quantity produced that a firm has to pay in order to produce and sell its goods. Total revenue
