Table Of Content

Practice Exercises for Intermediate Microeconomic Theory Tools and Step-by-Step Examples Eric Dunaway, John C. Strandholm, Ana Espinola-Arredondo, and Felix Muæoz-Garcia The MIT Press Cambridge, Massachusetts London, England c 2020 Massachusetts Institute of Technology (cid:13) All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from the publisher. This book was set in LaTeX by the authors. ISBN: 978-0-262-53985-2 Contents Preface 11 Chapter 2 - Consumer Preferences and Utility 14 2.1 Solutions to Self-Assessment Exercises . . . . . . . . . . . . . . . . . . . . . . 14 Self-assessment exercise #2.1 . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Self-assessment exercise #2.2 . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Self-assessment exercise #2.3 . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Self-assessment exercise #2.4 . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Self-assessment exercise #2.5 . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Self-assessment exercise #2.6 . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Self-assessment exercise #2.7 . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Self-assessment exercise #2.8 . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Self-assessment exercise #2.9 . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Self-assessment exercise #2.10 . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Self-assessment exercise #2.11 . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Self-assessment exercise #2.12 . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Self-assessment exercise #2.13 . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Self-assessment exercise #2.14 . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Self-assessment exercise #2.15 . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.2 Solutions to End-of-Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . 29 Exercise #2.1 - Indi⁄erence CurvesB . . . . . . . . . . . . . . . . . . . . . . 29 Exercise #2.3 - One Way or AnotherB . . . . . . . . . . . . . . . . . . . . . 35 Exercise #2.5 - Cobb-DouglasA . . . . . . . . . . . . . . . . . . . . . . . . . 37 Exercise #2.7 - Perfect SubstitutesA . . . . . . . . . . . . . . . . . . . . . . 37 Exercise #2.9 - Increasing TransformationsB . . . . . . . . . . . . . . . . . . 38 Exercise #2.11 - Finding Properties(cid:150)IIC . . . . . . . . . . . . . . . . . . . . 40 Exercise #2.13 - Finding Properties(cid:150)IVB . . . . . . . . . . . . . . . . . . . . 42 Exercise #2.15 - Guilty PreferencesB . . . . . . . . . . . . . . . . . . . . . . 43 Exercise #2.17 - Protein PreferencesA . . . . . . . . . . . . . . . . . . . . . . 45 Exercise #2.19 - Eating PizzaA . . . . . . . . . . . . . . . . . . . . . . . . . 46 Chapter 3 - Consumer Choice 47 3.1 Solutions to Self-Assessment Exercises . . . . . . . . . . . . . . . . . . . . . . 47 Self-assessment exercise #3.1 . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Self-assessment exercise #3.2 . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Self-assessment exercise #3.3 . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Self-assessment exercise #3.4 . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Self-assessment exercise #3.5 . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Self-assessment exercise #3.6 . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Self-assessment exercise #3.7 . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Self-assessment exercise #3.8 . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Self-assessment exercise #3.9 . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Self-assessment exercise #3.10 . . . . . . . . . . . . . . . . . . . . . . . . . . 59 3.2 Solutions to End-of-Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . 59 1 Exercise #3.1 - Budget LineA . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Exercise #3.3 - Composite GoodA . . . . . . . . . . . . . . . . . . . . . . . . 62 Exercise #3.5 - Expenditure FunctionA . . . . . . . . . . . . . . . . . . . . . 65 Exercise #3.7 - Cobb-Douglas(cid:150)IA . . . . . . . . . . . . . . . . . . . . . . . . 66 Exercise #3.9 - Cobb-Douglas(cid:150)IIIC . . . . . . . . . . . . . . . . . . . . . . . 67 Exercise #3.11 - Di⁄erent RelationshipsC . . . . . . . . . . . . . . . . . . . . 68 Exercise #3.13 - Perfect Complements(cid:150)IA . . . . . . . . . . . . . . . . . . . 69 Exercise #3.15 - Expenditure Minimization ProblemA . . . . . . . . . . . . . 70 Exercise #3.17 - Perfect Complements(cid:150)IIB . . . . . . . . . . . . . . . . . . . 71 Exercise #3.19 - Utility MaximizationB . . . . . . . . . . . . . . . . . . . . . 72 Chapter 4 - Substitution and Income E⁄ects 74 4.1 Solutions to Self-Assessment Exercises . . . . . . . . . . . . . . . . . . . . . . 74 Self-assessment exercise #4.1 . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Self-assessment exercise #4.2 . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Self-assessment exercise #4.3 . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Self-assessment exercise #4.4 . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Self-assessment exercise #4.5 . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Self-assessment exercise #4.6 . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Self-assessment exercise #4.7 . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Self-assessment exercise #4.8 . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Self-assessment exercise #4.9 . . . . . . . . . . . . . . . . . . . . . . . . . . 81 4.2 Solutions to End-of-Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . 83 Exercise #4.1 - Deriving Functions(cid:150)IA . . . . . . . . . . . . . . . . . . . . . 83 Exercise #4.3 - Quasilinear Utility(cid:150)IB . . . . . . . . . . . . . . . . . . . . . . 86 Exercise #4.5 - Decomposition BundlesB . . . . . . . . . . . . . . . . . . . . 88 Exercise #4.7 - Income E⁄ectsA . . . . . . . . . . . . . . . . . . . . . . . . . 93 Exercise #4.9 - Linear DemandA . . . . . . . . . . . . . . . . . . . . . . . . 93 Exercise #4.11 - Income Elasticity(cid:150)IB . . . . . . . . . . . . . . . . . . . . . . 94 Exercise #4.13 - Perfect ComplementsB . . . . . . . . . . . . . . . . . . . . 95 Exercise #4.15 - Deriving Functions(cid:150)IIA . . . . . . . . . . . . . . . . . . . . 99 Exercise #4.17 - Income Elasticity(cid:150)IIA . . . . . . . . . . . . . . . . . . . . . 101 Exercise #4.19 - Gi⁄en Good?B . . . . . . . . . . . . . . . . . . . . . . . . . 102 Chapter 5 - Measuring Welfare Changes 103 5.1 Solutions to Self-Assessment Exercises . . . . . . . . . . . . . . . . . . . . . . 103 Self-assessment exercise #5.1 . . . . . . . . . . . . . . . . . . . . . . . . . . 103 Self-assessment exercise #5.2 . . . . . . . . . . . . . . . . . . . . . . . . . . 103 Self-assessment exercise #5.3 . . . . . . . . . . . . . . . . . . . . . . . . . . 103 Self-assessment exercise #5.4 . . . . . . . . . . . . . . . . . . . . . . . . . . 105 Self-assessment exercise #5.5 . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Self-assessment exercise #5.6 . . . . . . . . . . . . . . . . . . . . . . . . . . 108 Self-assessment exercise #5.7 . . . . . . . . . . . . . . . . . . . . . . . . . . 109 5.2 Solutions to End-of-Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . 109 Exercise #5.1 - Changes in CSA . . . . . . . . . . . . . . . . . . . . . . . . . 109 Exercise #5.3 - CS and Changing PricesA . . . . . . . . . . . . . . . . . . . 110 2 Exercise #5.5 - CS and Nonlinear Demand(cid:150)IA . . . . . . . . . . . . . . . . . 111 Exercise #5.7 - Calculating CVB . . . . . . . . . . . . . . . . . . . . . . . . 111 Exercise #5.9 - CV with Cobb-Douglas Utility FunctionB . . . . . . . . . . . 112 Exercise #5.11 - CV with General Price ChangeC . . . . . . . . . . . . . . . 113 Exercise #5.13 - EV with Cobb-Douglas Demand(cid:150)IIB . . . . . . . . . . . . . 115 Exercise #5.15 - EV with Di⁄erent IncomeA . . . . . . . . . . . . . . . . . . 115 Exercise #5.17 - CS, CV, and EV with No Income E⁄ects(cid:150)IB . . . . . . . . 116 Exercise #5.19 - Alternative Representation of CVB . . . . . . . . . . . . . . 118 Exercise #5.21 - Alternative Representation of EVB . . . . . . . . . . . . . . 120 Chapter 6 - Choice under Uncertainty 124 6.1 Solutions to Self-Assessment Exercises . . . . . . . . . . . . . . . . . . . . . . 124 Self-assessment exercise #6.1 . . . . . . . . . . . . . . . . . . . . . . . . . . 124 Self-assessment exercise #6.2 . . . . . . . . . . . . . . . . . . . . . . . . . . 124 Self-assessment exercise #6.3 . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Self-assessment exercise #6.4 . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Self-assessment exercise #6.5 . . . . . . . . . . . . . . . . . . . . . . . . . . 126 Self-assessment exercise #6.6 . . . . . . . . . . . . . . . . . . . . . . . . . . 126 Self-assessment exercise #6.7 . . . . . . . . . . . . . . . . . . . . . . . . . . 126 Self-assessment exercise #6.8 . . . . . . . . . . . . . . . . . . . . . . . . . . 127 6.2 Solutions to End-of-Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . 128 Exercise #6.1 - Expected UtilityA . . . . . . . . . . . . . . . . . . . . . . . . 128 Exercise #6.3 - EV and Variance(cid:150)IIB . . . . . . . . . . . . . . . . . . . . . . 128 Exercise #6.5 - Expected Utility(cid:150)IIA . . . . . . . . . . . . . . . . . . . . . . 129 Exercise #6.7 - Risk AversionB . . . . . . . . . . . . . . . . . . . . . . . . . 130 Exercise #6.9 - Risk LovingB . . . . . . . . . . . . . . . . . . . . . . . . . . 131 Exercise #6.11 - Risk NeutralityB . . . . . . . . . . . . . . . . . . . . . . . . 132 Exercise #6.13 - Contracting an IllnessB . . . . . . . . . . . . . . . . . . . . 133 Exercise #6.15 - Not Purchasing Full InsuranceB . . . . . . . . . . . . . . . 135 Exercise #6.17 - Arrow-Pratt Coe¢ cient(cid:150)IIB . . . . . . . . . . . . . . . . . . 136 Exercise #6.19 - Prospect Theory(cid:150)IB . . . . . . . . . . . . . . . . . . . . . . 137 Exercise #6.21 - GamblingA . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 Chapter 7 - Production Functions 139 7.1 Solutions to Self-Assessment Exercises . . . . . . . . . . . . . . . . . . . . . . 139 Self-assessment exercise #7.1 . . . . . . . . . . . . . . . . . . . . . . . . . . 139 Self-assessment exercise #7.2 . . . . . . . . . . . . . . . . . . . . . . . . . . 139 Self-assessment exercise #7.3 . . . . . . . . . . . . . . . . . . . . . . . . . . 140 Self-assessment exercise #7.4 . . . . . . . . . . . . . . . . . . . . . . . . . . 140 Self-assessment exercise #7.5 . . . . . . . . . . . . . . . . . . . . . . . . . . 140 Self-assessment exercise #7.6 . . . . . . . . . . . . . . . . . . . . . . . . . . 141 Self-assessment exercise #7.7 . . . . . . . . . . . . . . . . . . . . . . . . . . 141 Self-assessment exercise #7.8 . . . . . . . . . . . . . . . . . . . . . . . . . . 142 Self-assessment exercise #7.9 . . . . . . . . . . . . . . . . . . . . . . . . . . 142 Self-assessment exercise #7.10 . . . . . . . . . . . . . . . . . . . . . . . . . . 142 Self-assessment exercise #7.11 . . . . . . . . . . . . . . . . . . . . . . . . . . 143 3 Self-assessment exercise #7.12 . . . . . . . . . . . . . . . . . . . . . . . . . . 144 Self-assessment exercise #7.13 . . . . . . . . . . . . . . . . . . . . . . . . . . 144 7.2 Solutions to End-of-Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . 144 Exercise #7.1 - Properties of Production FunctionsB . . . . . . . . . . . . . 144 Exercise #7.3 - Where the MP and AP Curves CrossA . . . . . . . . . . . . 146 Exercise #7.5 - MP and Changing CapitalB . . . . . . . . . . . . . . . . . . 147 Exercise #7.7 - Linear Production and MRTSA . . . . . . . . . . . . . . . . 148 Exercise #7.9 - Returns to Scale(cid:150)IA . . . . . . . . . . . . . . . . . . . . . . . 148 Exercise #7.11 - Decreasing Marginal ReturnsA . . . . . . . . . . . . . . . . 149 Exercise #7.13 - Choosing ProductionA . . . . . . . . . . . . . . . . . . . . . 149 Exercise #7.15 - CES Production Function and Marginal ProductsB . . . . . 150 Exercise #7.17 - Choosing Factors of ProductionB . . . . . . . . . . . . . . . 150 Exercise #7.19 - Comparing MRTSC . . . . . . . . . . . . . . . . . . . . . . 151 Chapter 8 - Cost Minimization 153 8.1 Solutions to Self-Assessment Exercises . . . . . . . . . . . . . . . . . . . . . . 153 Self-assessment exercise #8.1 . . . . . . . . . . . . . . . . . . . . . . . . . . 153 Self-assessment exercise #8.2 . . . . . . . . . . . . . . . . . . . . . . . . . . 153 Self-assessment exercise #8.3 . . . . . . . . . . . . . . . . . . . . . . . . . . 154 Self-assessment exercise #8.4 . . . . . . . . . . . . . . . . . . . . . . . . . . 155 Self-assessment exercise #8.5 . . . . . . . . . . . . . . . . . . . . . . . . . . 156 Self-assessment exercise #8.6 . . . . . . . . . . . . . . . . . . . . . . . . . . 157 Self-assessment exercise #8.7 . . . . . . . . . . . . . . . . . . . . . . . . . . 157 Self-assessment exercise #8.8 . . . . . . . . . . . . . . . . . . . . . . . . . . 158 Self-assessment exercise #8.9 . . . . . . . . . . . . . . . . . . . . . . . . . . 159 Self-assessment exercise #8.10 . . . . . . . . . . . . . . . . . . . . . . . . . . 159 Self-assessment exercise #8.11 . . . . . . . . . . . . . . . . . . . . . . . . . . 159 Self-assessment exercise #8.12 . . . . . . . . . . . . . . . . . . . . . . . . . . 160 Self-assessment exercise #8.13 . . . . . . . . . . . . . . . . . . . . . . . . . . 160 8.2 Solutions to End-of-Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . 161 Exercise #8.1 - Cost Minimization for Cobb-DouglasB . . . . . . . . . . . . 161 Exercise #8.3 - Properties of a Cost FunctionB . . . . . . . . . . . . . . . . 164 Exercise #8.5 - CMP for Cobb-Douglas Production(cid:150)IC . . . . . . . . . . . . 165 Exercise #8.7 - Explicit and Implicit CostsA . . . . . . . . . . . . . . . . . . 168 Exercise #8.9 - CMP with Cobb-Douglas Production(cid:150)IIB . . . . . . . . . . . 168 Exercise #8.11 - Cobb-Douglas Production and Input DemandB . . . . . . . 169 Exercise #8.13 - Short-Run Cobb-Douglas CostsB . . . . . . . . . . . . . . . 170 Exercise #8.15 - Substitutes in ProductionB . . . . . . . . . . . . . . . . . . 173 Exercise #8.17 - Economies of Scale(cid:150)IA . . . . . . . . . . . . . . . . . . . . . 174 Exercise #8.19 - Economies of ScopeA . . . . . . . . . . . . . . . . . . . . . 174 Exercise #8.21 - Experience Elasticity(cid:150)IIA . . . . . . . . . . . . . . . . . . . 175 Chapter 9 - Partial and General Equilibrium 176 9.1 Solutions to Self-Assessment Exercises . . . . . . . . . . . . . . . . . . . . . . 176 Self-assessment exercise #9.1 . . . . . . . . . . . . . . . . . . . . . . . . . . 176 Self-assessment exercise #9.2 . . . . . . . . . . . . . . . . . . . . . . . . . . 176 4 Self-assessment exercise #9.3 . . . . . . . . . . . . . . . . . . . . . . . . . . 177 Self-assessment exercise #9.4 . . . . . . . . . . . . . . . . . . . . . . . . . . 177 Self-assessment exercise #9.5 . . . . . . . . . . . . . . . . . . . . . . . . . . 178 Self-assessment exercise #9.6 . . . . . . . . . . . . . . . . . . . . . . . . . . 179 Self-assessment exercise #9.7 . . . . . . . . . . . . . . . . . . . . . . . . . . 180 Self-assessment exercise #9.8 . . . . . . . . . . . . . . . . . . . . . . . . . . 180 Self-assessment exercise #9.9 . . . . . . . . . . . . . . . . . . . . . . . . . . 182 Self-assessment exercise #9.10 . . . . . . . . . . . . . . . . . . . . . . . . . . 182 9.2 Solutions to End-of-Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . 183 Exercise #9.1 - Identifying Perfectly Competitive MarketsA . . . . . . . . . . 183 Exercise #9.3 - Long-Run Equilibrium and SubsidiesB . . . . . . . . . . . . 183 Exercise #9.5 - Perfectly Competitive Equilibrium(cid:150)IIA . . . . . . . . . . . . 187 Exercise #9.7 - Shutdown Price and Short-Run SupplyA . . . . . . . . . . . 187 Exercise #9.9 - Finding Aggregate Supply and EquilibriumA . . . . . . . . . 189 Exercise #9.11 - Calculating Producer SurplusA . . . . . . . . . . . . . . . . 190 Exercise #9.13 - Pro(cid:133)t versus Producer SurplusB . . . . . . . . . . . . . . . 191 Exercise #9.15 - General Equilibrium(cid:150)IB . . . . . . . . . . . . . . . . . . . . 191 Exercise #9.17 - E¢ ciency in General EquilibriumB . . . . . . . . . . . . . . 192 Exercise #9.19 - Second Welfare TheoremC . . . . . . . . . . . . . . . . . . 194 Exercise #9.21 - First Welfare Theorem with External E⁄ectsC . . . . . . . 196 Chapter 10 - Monopoly 201 10.1 Solutions to Self-Assessment Exercises . . . . . . . . . . . . . . . . . . . . . . 201 Self-assessment exercise #10.1 . . . . . . . . . . . . . . . . . . . . . . . . . . 201 Self-assessment exercise #10.2 . . . . . . . . . . . . . . . . . . . . . . . . . . 202 Self-assessment exercise #10.3 . . . . . . . . . . . . . . . . . . . . . . . . . . 205 Self-assessment exercise #10.4 . . . . . . . . . . . . . . . . . . . . . . . . . . 206 Self-assessment exercise #10.5 . . . . . . . . . . . . . . . . . . . . . . . . . . 206 Self-assessment exercise #10.6 . . . . . . . . . . . . . . . . . . . . . . . . . . 206 Self-assessment exercise #10.7 . . . . . . . . . . . . . . . . . . . . . . . . . . 207 Self-assessment exercise #10.8 . . . . . . . . . . . . . . . . . . . . . . . . . . 208 Self-assessment exercise #10.9 . . . . . . . . . . . . . . . . . . . . . . . . . . 209 Self-assessment exercise #10.10 . . . . . . . . . . . . . . . . . . . . . . . . . 209 10.2 Solutions to End-of-Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . 211 Exercise #10.1 - Monopoly Equilibrium-Linear CostsB . . . . . . . . . . . . 211 Exercise #10.3 - Maximizing Revenue versus Pro(cid:133)tA . . . . . . . . . . . . . 213 Exercise #10.5 - Regulating a Natural MonopolyB . . . . . . . . . . . . . . . 215 Exercise #10.7 - Two Parts of Marginal RevenueA . . . . . . . . . . . . . . . 217 Exercise #10.9 - Factors of a High Monopoly PriceB . . . . . . . . . . . . . . 218 Exercise #10.11 - Monopoly with General Linear DemandC . . . . . . . . . . 218 Exercise #10.13 - Multiplant Monopoly(cid:150)IB . . . . . . . . . . . . . . . . . . . 219 Exercise #10.15 - Multiproduct MonopolyC . . . . . . . . . . . . . . . . . . 220 Exercise #10.17 - Advertising-to-Sales RatioA . . . . . . . . . . . . . . . . . 222 Exercise #10.19 - Identify a MonopsonyA . . . . . . . . . . . . . . . . . . . . 222 Exercise #10.21 - Monopsony(cid:150)Two InputsB . . . . . . . . . . . . . . . . . . 222 5 Chapter 11 - Price Discrimination and Bundling 224 11.1 Solutions to Self-Assessment Exercises . . . . . . . . . . . . . . . . . . . . . . 224 Self-assessment exercise #11.1 . . . . . . . . . . . . . . . . . . . . . . . . . . 224 Self-assessment exercise #11.2 . . . . . . . . . . . . . . . . . . . . . . . . . . 224 Self-assessment exercise #11.3 . . . . . . . . . . . . . . . . . . . . . . . . . . 226 Self-assessment exercise #11.4 . . . . . . . . . . . . . . . . . . . . . . . . . . 226 11.2 Solutions to End-of-Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . 230 Exercise #11.1 - Price Discrimination with Di⁄erent DemandsB . . . . . . . 230 Exercise #11.3 - Implementing Price DiscriminationA . . . . . . . . . . . . . 231 Exercise #11.5 - When to Price DiscriminateB . . . . . . . . . . . . . . . . . 232 Exercise #11.7 - Willingness to Price DiscriminateB . . . . . . . . . . . . . . 234 Exercise #11.9 - Deciding When to Withdraw from a MarketB . . . . . . . . 235 Exercise #11.11 - Second-Degree Price DiscriminationA . . . . . . . . . . . . 237 Exercise #11.13 - Second-Degree Price Discrimination with Three BlocksC . 239 Exercise #11.15 - Bundling PricesA . . . . . . . . . . . . . . . . . . . . . . . 240 Exercise #11.17 - Bundling-IIB . . . . . . . . . . . . . . . . . . . . . . . . . 241 Exercise #11.19 - Bundling-IIIB . . . . . . . . . . . . . . . . . . . . . . . . . 244 Chapter 12 - Simultaneous-Move Games 247 12.1 Solutions to Self-Assessment Exercises . . . . . . . . . . . . . . . . . . . . . . 247 Self-assessment exercise #12.1 . . . . . . . . . . . . . . . . . . . . . . . . . . 247 Self-assessment exercise #12.2 . . . . . . . . . . . . . . . . . . . . . . . . . . 247 Self-assessment exercise #12.3 . . . . . . . . . . . . . . . . . . . . . . . . . . 248 Self-assessment exercise #12.4 . . . . . . . . . . . . . . . . . . . . . . . . . . 249 Self-assessment exercise #12.5 . . . . . . . . . . . . . . . . . . . . . . . . . . 250 Self-assessment exercise #12.6 . . . . . . . . . . . . . . . . . . . . . . . . . . 250 Self-assessment exercise #12.7 . . . . . . . . . . . . . . . . . . . . . . . . . . 251 Self-assessment exercise #12.8 . . . . . . . . . . . . . . . . . . . . . . . . . . 252 Self-assessment exercise #12.9 . . . . . . . . . . . . . . . . . . . . . . . . . . 253 Self-assessment exercise #12.10 . . . . . . . . . . . . . . . . . . . . . . . . . 254 12.2 Solutions to End-of-Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . 256 Exercise #12.1 - Strict DominanceA . . . . . . . . . . . . . . . . . . . . . . . 256 Exercise #12.3 - Strict Dominance (cid:150)Some BiteB . . . . . . . . . . . . . . . 257 Exercise #12.5 - Prisoner(cid:146)s DilemmaB . . . . . . . . . . . . . . . . . . . . . 259 Exercise #12.7 - Weak DominanceA . . . . . . . . . . . . . . . . . . . . . . . 259 Exercise #12.9 - Weak Dominance(cid:150)IIIB . . . . . . . . . . . . . . . . . . . . . 260 Exercise #12.11 - Nash Equilibrium in a 3x3 MatrixB . . . . . . . . . . . . . 263 Exercise #12.13 - Nash Equilibrium in the Split(cid:150)Steal GameB . . . . . . . . 264 Exercise #12.15 - Rock, Paper, Scissors(cid:150)IA . . . . . . . . . . . . . . . . . . . 265 Exercise #12.17 - Charitable ContributionsB . . . . . . . . . . . . . . . . . . 267 Exercise #12.19 - Finding msNE(cid:150)Coordination GameB . . . . . . . . . . . . 268 Exercise #12.21 - Penalty KicksA . . . . . . . . . . . . . . . . . . . . . . . . 270 6 Chapter 13 - Sequential and Repeated Games 272 13.1 Solutions to Self-Assessment Exercises . . . . . . . . . . . . . . . . . . . . . . 272 Self-assessment exercise #13.1 . . . . . . . . . . . . . . . . . . . . . . . . . . 272 Self-assessment exercise #13.2 . . . . . . . . . . . . . . . . . . . . . . . . . . 273 Self-assessment exercise #13.3 . . . . . . . . . . . . . . . . . . . . . . . . . . 274 Self-assessment exercise #13.4 . . . . . . . . . . . . . . . . . . . . . . . . . . 276 13.2 Solutions to End-of-Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . 278 Exercise #13.1 - Backward Induction(cid:150)IA . . . . . . . . . . . . . . . . . . . . 278 Exercise #13.3 - Backward Induction(cid:150)IIIB . . . . . . . . . . . . . . . . . . . 281 Exercise #13.5 - Backward Induction(cid:150)VB . . . . . . . . . . . . . . . . . . . . 284 Exercise #13.7 - Battle of the Sexes GameA . . . . . . . . . . . . . . . . . . 288 Exercise #13.9 - Anticoordination GameA . . . . . . . . . . . . . . . . . . . 293 Exercise #13.11 - Complementary PricingB . . . . . . . . . . . . . . . . . . 298 Exercise #13.13 - Centipede GameC . . . . . . . . . . . . . . . . . . . . . . 304 Exercise #13.15 - Repeated DilemmasB . . . . . . . . . . . . . . . . . . . . . 310 Exercise #13.17 - Alternative TriggersB . . . . . . . . . . . . . . . . . . . . . 311 Exercise #13.19 - Temporary PunishmentsC . . . . . . . . . . . . . . . . . . 316 Exercise #13.21 - Punishment SizeB . . . . . . . . . . . . . . . . . . . . . . 318 Exercise #13.23 - Rock, Paper, Scissors(cid:150)IIB . . . . . . . . . . . . . . . . . . 319 Chapter 14 - Imperfect Competition 320 14.1 Solutions to Self-Assessment Exercises . . . . . . . . . . . . . . . . . . . . . . 320 Self-assessment exercise #14.1 . . . . . . . . . . . . . . . . . . . . . . . . . . 320 Self-assessment exercise #14.2 . . . . . . . . . . . . . . . . . . . . . . . . . . 321 Self-assessment exercise #14.3 . . . . . . . . . . . . . . . . . . . . . . . . . . 323 Self-assessment exercise #14.4 . . . . . . . . . . . . . . . . . . . . . . . . . . 325 Self-assessment exercise #14.5 . . . . . . . . . . . . . . . . . . . . . . . . . . 326 Self-assessment exercise #14.6 . . . . . . . . . . . . . . . . . . . . . . . . . . 327 Self-assessment exercise #14.7 . . . . . . . . . . . . . . . . . . . . . . . . . . 328 Self-assessment exercise #14.8 . . . . . . . . . . . . . . . . . . . . . . . . . . 329 Self-assessment exercise #14.9 . . . . . . . . . . . . . . . . . . . . . . . . . . 329 14.2 Solutions to End-of-Chapter Exercises . . . . . . . . . . . . . . . . . . . . . . 330 Exercise #14.1 - Her(cid:133)ndahl-Hirschman IndexA . . . . . . . . . . . . . . . . . 330 Exercise #14.3 - Properties of the Best Response FunctionB . . . . . . . . . 331 Exercise #14.5 - Symmetric CournotA . . . . . . . . . . . . . . . . . . . . . 332 Exercise #14.7 - Cournot with Asymmetric Fixed CostsB . . . . . . . . . . . 334 Exercise #14.9 - Cournot with Three FirmsC . . . . . . . . . . . . . . . . . . 336 Exercise #14.11 - Finitely Repeated Grim-Trigger StrategyB . . . . . . . . . 338 Exercise #14.13 - Collusion with Delayed DetectionB . . . . . . . . . . . . . 339 Exercise #14.15 - Colluding BarbecueB . . . . . . . . . . . . . . . . . . . . . 340 Exercise #14.17 - Properties of the Stackelberg EquilibriumA . . . . . . . . . 343 Exercise #14.19 - Cournot versus StackelbergB . . . . . . . . . . . . . . . . . 344 Exercise #14.21 - Product Di⁄erentiationA . . . . . . . . . . . . . . . . . . . 346 Exercise #14.23 - Stackelberg Prices with Homogeneous GoodsA . . . . . . . 347 Exercise #14.25 - Reconciling Bertrand and Cournot through CapacityC . . 348 7

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Practice Exercises for Intermediate Microeconomic Theory PDF

416 Pages·2020·5.179 MB·English
by  Eric Dunaway, John C. Strandholm, Ana Espinola-Arredondo, Felix Munoz-Garcia
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Author:Eric Dunaway, John C. Strandholm, Ana Espinola-Arredondo, Felix Munoz-Garcia
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