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Microeconomics
Course E
John Hey
Examinations
• Go to http://www.luiss.it/hey/microeconomia/esami.htm
• Read http://www.luiss.it/hey/microeconomia/detesen.htm
• Check on Answer Sheet
• Check on Aide/Memoire
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Aide-Memoire
Grids 1
Grids 2
Answer Sheet
• Answer
• sheet
Example 1 of Exams
Appello1 Traccia 1
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1-4: demand and supply
5-7: Edgeworth Box
8,9: finding consumer demands
10,11: finding firm demands
12,13: competitive firm
14,15: monopoly
16,17: game theory
1-4: demand and supply
• Consider a market for a hypothetical good in
which there are a number of buyers and sellers,
each of which wants to buy or sell one unit of the
good. Assume that a buyer who is indifferent
about buying always buys and a seller who is
indifferent about selling always sells. The
reservation prices are given below, first for the
buyers and then for the sellers.
• Buyers: 7, 6, 8, 5, 7. Sellers: 2, 6, 3, 3, 7, 7, 4.
Question 1: What is the maximum quantity demanded?
(a) 5
(b) 12
(c) 6
(d) 7
Question 2: What is the maximum quantity supplied?
(a) 7
(b) 4
(c) 5
(d) 12
Question 3: What is the competitive equilibrium price (specify a range if more
than one equilibrium price)?
(a) 4
(b) 7
(c) 6
(d) Any price between 5 and 6
Question 4: What is the quantity exchanged in the competitive equilibrium?
(a) 5
(b) 2
(c) 4
(d) 3
Questions 5-7
• Consider, in an Edgeworth Box, exchange between two
individuals, Individual A and Individual B, with
preferences as specified below, endowed with two
goods, Good 1 and Good 2. (Consider only competitive
equilibrium in which at least one individual is better off
compared to the initial position.)
• Individual A has Perfect Complement preferences with
parameter a = 1. Individual B has Perfect Complement
preferences with parameter a = 2. Total endowment of
good 1 is 6 and that of good 2 is 8.
• Individual A's endowment of good 1 is 2 and that of good
2 is 7.
Question 5: What is the competitive equilibrium price ratio?
(a) 1.00
(b) 1.50
(c) 1.33
(d) 3.50
Question 6: What is the quantity exchanged of good 1 to reach the
competitive equilibrium?
(a) 4.00
(b) 2.00
(c) 3.00
(d) 1.00
Question 7: What is the quantity exchanged of good 2 to reach the
competitive equilibrium?
(a) 1.00
(b) 1.50
(c) 2.00
(d) 3.00
Questions 8 and 9
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In the next two questions you will be asked questions about the demands of an
individual with the following preferences at the following incomes and prices.
The individual has Perfect Complement preferences with parameter a = 1.00. The
individual has income 10 and faces prices 1.00 and 1.00 for goods 1 and 2.
Question 8: What is the individual's demand for Good 1?
􀁂 5.20
􀁂 5.00
􀁂 10.00
􀁂 0.00
Question 9: What is the individual's demand for Good 2?
􀁂 5.00
􀁂 10.00
􀁂 5.20
􀁂 0.00
Questions 10 and 11
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In the next two questions you will be asked to consider a firm with constant
returns to scale technology. You will be told the technology, the desired
output and the factor prices that the firm faces. You will be asked to work
out the firms' demand for the two factors. The technology is Perfect
Substitutes with parameter a = 1.00. The firm produces output 30 and faces
factor prices 2.00 and 2.00 for factors 1 and 2.
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Question 10: What is the firm's demand for factor 1?
􀁂 0.00
􀁂 Any point on the isoquant for the level of output required
􀁂 30.00
􀁂 15.00
Question 11: What is the firm's demand for factor 2?
􀁂 Any point on the isoquant for the level of output required
􀁂 30.10
􀁂 60.00
􀁂 30.00
Questions 12 and 13
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In the next two questions you will be asked to consider a competive firm
which has a cost function C(y) = a + b*y + c*y^2 where a, b and c are given
below.
a = 10.0, b = 0.0, c = 2.0. Suppose that the price of the firm's output is 40.
Question 12: Determine the optimal output of the firm.
􀁂 40.00
􀁂 0.00
􀁂 10.00
􀁂 20.25
Question 13: What is the firm's profit?
􀁂 0.00
􀁂 190.00
􀁂 809.88
􀁂 400.00
Questions 14 and 15
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In the next two questions you will be asked to consider a monopoly with a
demand curve for its output given by p = a - b*y where p and y denote the
price and quantity of its output and where a and b are given below.
Suppose that the cost function of the firm is given by C(y) = c + d*y where c
and d are given below. Assume that the monopolist always has to pay its
fixed costs. a = 20, b = 1. c = 20, d = 10
Question 14: What price does the monopoly set if it wants to maximise its profits?
􀁂 15.00
􀁂 20.00
􀁂 0.00
􀁂 10.00
Question 15: What output does the monopoly optimally produce?
􀁂 0.00
􀁂 10.00
􀁂 11.00
􀁂 5.00
Questions 16 and 17
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In the next two questions you will be asked to consider a game played simultaneously, and
without communication between two players, 1 and 2, each of whom can choose one of
two options A and B. The payoffs to the two players are given below, the first for Player 1
and then for Player 2. The order of the payoffs is AA, AB, BA, BB where XY indicates the
outcome when Player 1 plays X and Player 2 plays Y.
Player 1: 1, 7, 3, 10. Player 2: 4, 9, 6, 10.
Question 16: Specify ALL the Nash Equilibria in pure strategies.
􀁂 BA
􀁂 AA
􀁂 There are none
􀁂 BB
Question 17: Specify ALL other outcomes (not a Nash Equilibrium) that Pareto
dominate any of these.
􀁂 AA dominates BA
􀁂 BA dominates AA
􀁂 There are none
􀁂 BA e AA dominates AB
Tips!
• Remember that you get 2 marks for a
correct answer and lose 1 mark for an
incorrect.
• DO NOT GUESS!
• Take coloured pencils and pens.
• Take a rubber.
• Do NOT apply MAGIC formulae.
• Good Luck!!