Question 1 : [ Answer all question below using given case studies a Why do you think UPS is embracing sustainable technologies? [4 Marks] b. How is UPS developing a sustainable MIS infrastructure? [4 Marks] C. What business benefits will UPS gain from virtualization? [4 Marks] d. What role does each characteristics of an agile MIS infrastructure play in helping UPS to operate its business? [4 Marks] e. How could UPS benefit from cloud or grid computing? [3 Marks] f. What types of ethical issues might UPS encounter with the tracking technology it has placed in its trucks? [3 Marks] What types of security issues might UPS encounter with the tracking technology it has placed in its trucks? [3 Marks] Continued overleaf ...Exercises Question 1 (Collusion) Suppose there are two firms - A and B - entering into a collusion agreement to restrict the quantity sold. The demand curve of this good is given by P= 100 -Q, where @ is the total quantity in the market. Each unit of good costs AC = MC = 20. A single monopolist would maximize its profits of $1600 at Q = 40 units at price P = $60. 1. It is initially agreed that each firm will produce 20 units. Suppose firm A is contemplating cheating by producing 10 more units, what would be its profits compared to firm B? Collusion Firm A Cheats O P Profit P Profit Firm A 20 units $60 $800 Firm A 30 units $50 Firm B 20 units $60 $800 Firm B 20 units $50 2. What do you expect to happen next after Firm A cheats? When would this cheating ends? Question 2 (Price Leadership Model) Suppose the market demand is P = 100 - Q, the supply curve of small firms is P = 20 + Q, the marginal cost of dominant firm is MC = AC = 30. After each step, exhibit your curves or solutions graphically. D. Find the price where market demand and supply curve of small firms intersect. 1. Find the equations of demand and marginal revenue for dominant firm. 2. What is the quantity the dominant firm produces? At what price would this dominant firm lead into this market? 3. What is the quantity the small firms produce? At what price would the small firms sell? 4. What is the total quantity sold in this market? Verify your answer. 5. (Bonus) What if the dominant firm has the marginal cost of MC = 10? Question 3 (Price Leadership Model) There is one dominant firm and several smaller firms in the market for a particular good. The small firms supply curve is P = 10 + Q. The dominant faces a residual demand of P = 50 - 0.5Q. 1. Find the market demand curve. 2. If small firms produce 30 units, what is the price that the leader has set? What is the quantity that the leader has produced? 3. Assuming constant marginal cost by the leader firm, what is marginal cost? Question 4 (Price Leadership Model) There is one dominant firm and several smaller firms in the market for a particular good. The residual demand is P = 60 - 0.50, the market demand is P = 100 - Q. Suppose the small firms will not operate at price below $20, and that price is currently $40. 1. What is the marginal cost of the dominant firm if it has constant marginal cost? 2. What is the equation for the small firms supply?Question 3 (Numerical Questions - Table Format) The table below shows the quantity demanded at each price for a good, and the total cost to produce at each quantity for a monopolist. P TC 0 90 100 10 80 800 20 70 1200 30 60 1500 40 50 1700 50 40 2000 1. What is the profit-maximizing quantity? What price should this monopolist set for this good? What is the profit this monopolist earns? 2. Suppose this monopolist must now bribe the government to maintain the status as the sole producer. The government offers two ways to do so: Option 1: Pay a license fee of $10 per unit produced Option 2: Pay a flat license fee of $300 i) In each of the options offered by the government, evaluate the profit-maximizing behavior of this monopolist. ii) Which option would you, as a monopolist, choose? iii) What is the government revenue if you choose Option 1? Question 4 (Numerical Questions - Equation Format) Suppose the market demand of a good produced by monopolist is given by: P = 40 - Q. For this monopolist, the total cost is: TC = Q2 + 100, the marginal cost is: MC = 2Q. 1. What is the profit-maximizing quantity? What price should this monopolist set for this good? What is the profit this monopolist earns? 2. Suppose the fixed cost is now $350. In the short-run, what is the profit-maximizing quantity? What price should this monopolist set for this good? What is the profit this monopolist earns? Should this monopolist operate in the long-run?Points 70. Time 70 minutes (1.20-2.30pm). The first question carries 30 points; the second 40 points. Questions with parts within them give equal weight to the parts. Guide for Time Allocation: The questions in part (1) should take no more than 5 minutes each to answer. The questions in part (2) should take you no more than 10 minutes each. This schedule will allow you to finish the exam in 70 minutes. Good luck. (1) (30 points, 5 points per part) Are the following statements true or false? A simple yes-no answer will not suffice. Explain, with the use of diagrams where necessary. [a] The utility function u(a, b) = a-0--60. violates the nonsatiation assumption. [b] If a consumer is a net borrower, an increase in the interest rate must reduce his borrowing, if consumption in each date is a normal good. [e] If a good has income elasticity less than one, it is inferior. [d] If the demand curve for good A is everywhere flatter than that of good B, then good A has a higher price elasticity of demand. [e] If a given set of consumer preferences are transitive, then there must be an infinite number of indifference curves describing those preferences. [f] If there are two goods, A and B, and A is Giffen, then B must be a price-substitute for A. (2) (40 points, 10 points per part) Answer the following questions briefly and clearly. You can put in a diagram, and/or a simple example to illustrate. These are not true-false questions. (i) Potatoes sell for $5 per pound. Sam buys 20 pounds of potatoes per month. Now there is a potato blight, and the price goes up to $7. Sam's demand falls to 15 pounds. Without any assumptions on the demand curve (except that it is continuously downward sloping), show that Sam's loss in consumer surplus is at least 30 but no more than 40. (ii) Tom consumes, among other things, telephone services. He pays a tax on every phone call he makes, and ends up paying $100 every year in telephone taxes. Show that Tom would actually prefer to pay a flat tax of $100 and make phone calls taxfree. (iii) Sketch indifference curves that are consistent with each of the following sets of preferences. a) Classical music and hard rock: Rita loves listening to hard rock as long as it's no more than 5 hours a day; thereafter she hates it. But she loves classical music, the more the better. b) Beer and pizza: Mike drinks beer, but only gets satisfaction from the number of whole bottles he finishes (for example, 2, beers are the same as 2 as far as he's concerned). He also loves pizza (in continuous amounts; no surprises here). (iv) Assume Sally has 100 hours a week which she devotes to leisure or to making money. The wage rate is $10 per hour. Weekly income of $200 or less is fully free of taxation, but extra income above this amount is taxed at 20%. This continues until (gross) weekly income reaches $600, after which extra earnings above this amount are taxed at 10%. (a) Draw the budget constraint. (b) If Sally has convex indifference curves, is she guaranteed to have a unique optiumum choice? Explain