THE UNIVERSITY OF SYDNEY Faculty of Economics and Business悉尼大学经济与商业学院

PaperCode3856 Econ5001Semester22007PAGEPAGE10PaperCode3856 Econ5001Semester22007 THEUNIVERSITYFacultyofEconomicsandBusinessECON5001MicroeconomicTheory2ndSemester2007FinalExaminationTuesday13November2007FamilyName:FamilyName:GivenNames:StudentID:Seatnumber:InstructionsTheexamlasts2½hours(plus10minutesreadingtime).Maximummarks=55.PrintyourFamilyName,GivenNames,andStudentID,inthespaceprovidedaboveANDonthemultiplechoiceAnswerSheetANDontheexamBooklet(s).Thetestconsistsoftwoparts.YoumustanswerALLquestionsinbothparts.PartAMultipleChoice:25questions(1markeach). UsetheAnswerSheetprovided.PartBShortAnswer:3questions(10markseach). UsetheBooklet(s)provided.Thisisaclosed-bookexam:nonotesareallowed.Non-programmablecalculatorsarepermitted.AttheendoftheExamhandinthisQuestionSheet,themultiplechoiceAnswerSheet,andyouranswersintheexamBooklet(s).Thisexamhas10pages.

PartA:MultipleChoice(25markstotal)1.Afinitely-repeatedPrisoner’sDilemmadiffersfromaninfinitely-repeatedoneinthat:(a)inaninfinitely-repeatedgametheonlyequilibriumisthatbothplayersdefect.(b)thereisnowaytopunishaplayerfordefectinginaninfinitely-repeatedgame.(c)afinitely-repeatedgamecannotbesolvedbybackwardinduction.(d)cooperationisonlypossibleinaninfinitely-repeatedgame.(e)noneoftheabove.2.Arisk-averseindividualwouldalways(a)takea10%chanceat$100ratherthanasure$10.(b)takea50%chanceat$4anda50%chanceat$1ratherthanasure$1.(c)takeasure$10ratherthana10%chanceat$100.(d)takeasure$1ratherthana50%chanceat$4anda50%chanceatlosing$1.(e)noneoftheabove.3.JohnBrown’sutilityofincomefunctionisU=y2,whereyrepresentsincome.Fromthisinformationyoucansaythat(a)JohnBrownisriskneutral.(b)JohnBrownisriskloving.(c)JohnBrownisriskaverse.(d)weneedmoreinformationbeforewecandetermineJohnBrown’spreferenceforrisk.(e)noneoftheabove.Scenario1:Twofirmsproduceanidenticalproductwiththesamemarginalcostof6.MarketdemandisgivenbyQ=3,000−100P,whereQismarketoutputandPismarketprice.4.RefertoScenario1.Supposethetwofirm’sengageinsimultaneousquantitycompetition.Letq1,q2,p1andp2denotefirm1and2outputsandprices,respectively.Firm1’sbestresponse(reaction)functionisgivenby(a)q1=1,200−q2.(b)q1=1,000−q2/2.(c)q1=1,200−q2/2.(d)p1=1,000−p2/2.(e)noneoftheabove.5.RefertoScenario1.IntheNashequilibriumtotheproblemabove,howmuchdoesfirm1produce?(a)q1=600.(b)q1=800.(c)q1=1,000.(d)q1=1,200.(e)noneoftheabove.6.RefertoScenario1.Now,supposethatfirm1choosesit’soutputfirst.Firm2observesfirm1’schoiceofoutput,beforechoosingitsownoutput.IntheNashequilibriumtothisgame,howmuchdoesfirm1produce?(a)q1=600.(b)q1=800.(c)q1=1,000.(d)q1=1,200.(e)noneoftheabove.Scenario2:Therearetwotypesofusedcars,ofhighandlowquality.Eachsellerobservesthequalityoftheircar,butbuyersdonot.Boththebuyersandsellersarerisk-neutral.Qualityofcar ProbabilityValue Valuetobuyers CosttosellersHigh 40% 4,000 2,800 Low 60% 1,500 1,2007.RefertoScenario2.Ifthebuyersassumethatbothhighandlowqualitycarswillbeofferedforsale,whatisthemaximumpricetheywouldbewillingtopay?(a)1,500(b)2,500(c)3,000(d)4,000(e)noneoftheabove8.RefertoScenario2.Inthemarketequilibrium:(a)neitherthehighnorlowqualitycarswillbesold.(b)onlythelowqualitycarswillbesold.(c)onlythehighqualitycarswillbesold.(d)boththehighandlowqualitycarswillbesold.(e)noneoftheabove.9.RefertoScenario2.Supposethatasellerofahigh-qualitycarcanofferawarrantyatacostof600.Thesellerofalow-qualitycarcanofferanequivalentwarrantyatacostof1,100.(Theavailabilityofawarrantydoesnotalterthebuyervaluesshowninthetable.)Then:(a)neitherahighnorlow-qualitysellerwillofferawarranty.(b)onlyahigh-qualitysellerwillofferawarranty.(c)onlyalow-qualitysellerwillofferawarranty.(d)bothahighandlow-qualitysellerwillofferawarranty.(e)noneoftheabove.Johnisa55-year-oldmalesmoker,about50poundsoverweight,whohashighbloodsugaranddrinkstoexcessacoupleoftimeseachmonth.Becauseofadverseselectioninhealthinsurance,(a) Johnislesslikelytobuyhealthinsurancethantheaverageperson,becausetheaverageperson’spolicypremiumswillbebasedonhisrisk,nottheaveragerisk.(b) Johnismorelikelytobuyhealthinsurancethantheaverageperson,becausehispolicypremiumswillbebasedontheaveragerisk,nothispersonalrisk.(c)whenJohngetshealthinsurance,hewillbelesslikelytotakecareofhimself.(d)whenJohngetshealthinsurance,hewillbemorelikelytotakecareofhimself.(e)ifJohndoesn'thavehealthinsurancealready,hewillnotbeabletogetit.11.Efficiencyinriskbearingimpliesthat(a)riskiscompletelyeliminated.(b)theleastrisk-aversepartybearsmostoftherisk.(c)themostrisk-aversepartybearsmostoftherisk.(d)alloftheriskisbornebyjustoneofthepartiesregardlessofthedegreeofriskaversion.(e)noneoftheabove.Theprincipal-agentproblemincorporationsexistsbecausemanagersofafirm:(a)maypursuetheirowngoalsevenwhentheresultislowerprofitforowners.(b) mayknowhowtooperatethebusinessbetterthanabsenteeownersdo,andyetnotbeallowedto.(c)aregenerallyunabletodothemonitoringthatwouldresultinthefirm'savoidingmoralhazardproblems.(d)aregenerallyunabletodothemonitoringthatwouldresultinthefirm'savoidingadverseselection.(e)aregenerallyunabletomonitorworkers,whodonotcareabouttheprofitsduethemanagers.13.Theassumptionofcompletenessmeansthat(a)theconsumercanrankallpossibleconsumptionbundles.(b)moreofagoodisalwaysbetter.(c)theconsumerscanrankallaffordableconsumptionbundles.(d)allpreferencesconditionsaremet.(e)noneoftheabove.14)Ifaprofit-maximizingfirmfindsthat,atitscurrentlevelofproduction,MR<MC,itwill(a)decreaseoutput.(b)increaseoutput.(c)shutdown.(d)operateataloss.(e)noneoftheabove.Scenario3:Aworkercanchooseoneoftwolevelsofworkefforte.HerchoiceofworkeffortaffectstheprobabilitydistributionofrevenueRtoheremployer,asshowninthetablebelow.ThepayofftotheemployerisR−w,andthepayofftotheworkerisw−e,wherewistheamountpaidbytheemployertotheworker.Theworkercanalsochoosetoquitherjobforapayoffofzero.Bothplayersareriskneutral.EffortProbabilityLowrevenue(R=100)HighRevenue(R=700)Loweffort(e=0)0.900.10Higheffort(e=150)0.100.9015.Refertoscenario3.Expectedjointpayoffstotheemployerandworkeraregreatestwhen:(a)theworkerchoosesloweffort.(b)theworkerchooseshigheffort.(c)therevenuestateislow.(d)thisdependsonthepaymentschemeofferedtotheworker.(e)noneoftheabove.16.Refertoscenario3.Iftheemployeroffersafixedpaymentof100totheworker,thentheexpectedpayofftotheemployerwillbe:(a)75.(b)60.(c)65.(d)100.(e)noneoftheabove.17.Whichofthefollowingconditionsmustbetruesothatafirmcanpricediscriminate?(a)therearenootherfirmsinthemarket.(b)thegoodisanon-durable.(c)thegoodcannotbeeasilyresold.(d)thefirmfacesahorizontaldemandcurve.(e)alloftheabove.18.Supposetherock-bandU2hasamonopolyonthet-shirtsforits2007AustralianTour.Inanattempttoenhancerevenue,thegovernmentimposesa5%taxontheprofitfromsalesofU2t-shirts.AssumingthisresultsinU2stillchoosingtosellt-shirts,itshouldproduce:(a)fewert-shirtsthanbeforethetax.(b)thesamenumberoft-shirtsasbeforethetax.(c)moret-shirtsthanbeforethetax.(d)insufficientdata.19.From1990to2007,thepriceofauniversityeducationincreasedandtotalenrolmentincreased.Whichofthefollowingcouldhavecausedtheincreaseinpriceandenrolment?(a)Ashifttotherightinthesupplycurveforcollegeeducationandashifttotheleftinthedemandcurveforcollegeeducation.(b)Ashifttotheleftinthesupplycurveforcollegeeducationandashifttotherightinthedemandcurveforcollegeeducation.(c)Ashifttotheleftinthesupplycurveforcollegeeducationandashifttotheleftinthedemandcurveforcollegeeducation.(d)Noneoftheabove.20.IfattainingapassinMicroeconomicTheoryisverydifficultbecauseofrigorousacademicstandardsandhighdemandsupontheintellect,yetstudentslearnabsolutelynothingofanypracticalrelevance,thenitismostlikelythat:(a)Studentswillnotbehiredupongraduation.(b)ApassinMicroeconomicssendsacrediblesignaltoemployersregardingability.(c)StudyingMicroeconomicsisasociallyefficientuseofresources.(d)EveryonewillstudyMicroeconomicsinapoolingequilibrium.21.IncomparingtheCournotequilibriumwiththecompetitiveequilibrium,(a)bothprofitandoutputlevelarehigherinCournot.(b)bothprofitandoutputlevelarehigherinthecompetitiveequilibrium.(c)profitishigher,andoutputlevelislowerinthecompetitiveequilibrium.(d)profitishigher,andoutputlevelislowerinCournot.22.AnantiquecabinetisbeingsoldbymeansofanEnglishauction.Therearefourbidders:Zeldavaluesthecabinetat$800,Claravaluesitat$550,Annelivaluesitat$1,300,andDianavaluesitat$300.Ifthebiddersbidintheirrationalself-interest,thecabinetwillbesoldto(a)Anneliforabout$1,300.(b)Zeldaforabout$800.(c)eitherAnneliorZeldaforslightlymorethan$800.Whichofthemactuallygetsitisrandomlydetermined.(d)Anneliforslightlymorethan$800.23.Whichofthefollowingauctionawardstheobjecttothehighestbidder?(a)private-valueDutchAuction.(b)EnglishAuction.(c)firstpriceSealedBidAuction.(d)Alloftheabove.24. Underwhichoneofthefollowingcontractsdoesanagenthavetheleastincentivetobehaveopportunistically?(a) Theagentpaysafixedfeetotheprincipalfortherighttoallfuturepayoffs.(b) Theagentworksfortheprincipalonanhourlybasis.(c) Theagentreceivesashareoftheprofit.(d) Theagentworksfortheprincipalonaperunitbasis.25.Ifthemarketinterestrateis5%andabankadvertisesloansat12%,thebankwillreceive(a)noapplications.(b)applicationsfrommostlylow-riskborrowers.(c)applicationsfrommostlyhigh-riskborrowers.(d)amoralhazard.

PartB:ShortAnswer(30markstotal)1.10marks.ThedailyUSdollar/Australiandollarforeignexchangemarketisperfectlycompetitive.Thefollowingequationsdescribethemarket: q=5−p q=0.5+2pwherepistheexchangerate(i.e.,thepriceof1USdollarinAustraliandollars)andqisthequantityofUSdollarstransacted(inbillions).(a)SolvefortheequilibriumexchangerateandtheequilibriumquantityofUSdollarstransacteddailyinthismarket.(6marks)(b)SupposethattheReserveBankofAustralia(RBA)iscommittedtomaintaininganexchangerateofA$1.40=US$1.00.WilltheRBAhavetobuyorsellUSdollarstomaintainthefixedrate?Explain.(2marks)(c)HowmanyUSdollarswilltheRBAhavetobuyorselltomaintaintherateofA$1.40=US$1.00?(2marks)2.Aninvestorhasonedollar.Shehastheoptionofinvestingthisdollarinaproject.Theoutcomeoftheprojectdependsonthestateoftheworld.TherearesixstatesS={1,2...6}e