Econ 315 Final Exam Study Guide

There are 30 Scantron questions: each question is worth 3 points.

You will need a new Scantron 882 for the exam as some questions will be answered on the back side of the form.

The order of the material on your exam will differ from the order indicated below.

There are three short-answer questions worth 30 points in total.

Note that most of the material on the final has been covered since the second exam. Some of the material has not yet been covered since we still have four class meetings before the final exam. Where the material has not yet been covered it is indicated on the study guide.

Scantron Questions

Peak load pricing analysis – information not seen yet
Limit pricing analysis and outcome – information not seen yet
Predatory pricing analysis – information not seen yet
Rent seeking, general observations – information not seen yet
Price matching strategy, motivations and outcomes – information not seen yet
Penetration pricing, motivations and outcomes – information not seen yet
Given demand function and external/internal cost functions, determine the socially efficient level of output – information not seen yet
Given MC and price elasticity, find profit-maximizing price; formula required MC = MR = P (1+E)/E
Compare/contrast perfect competition/monopoly/oligopoly
Given information on an oligopolistic industry, relate market elasticity of demand and profit-maximizing markup factor. Formula required: P = NEm/(1 + NEm) x MC
Given demand function and cost function, find per-unit price charged under a two-part pricing strategy
Given a demand function and cost information, determine the firm’s price/quantity using a block pricing strategy– information not seen yet
Predict the outcome under a Bertrand oligopoly given demand and cost functions
Given cost information in a Cournot oligopoly, predict what will happen
Second degree price discrimination profit calculation
Influences on mark-ups for oligopolies
Optimal pricing using a commodity bundling pricing strategy – information not seen yet
General observations and predictions of the Sweezy model of oligopoly
Contestable markets – conditions, outcomes, examples
Deadweight loss in comparison of monopoly and perfect competition
Given scenarios, identify opportunity cost
Optimal action for a firm comparing marginal benefit and marginal cost
Supply/demand analysis; make prediction on future equilibrium price and quantity
Calculation using income elasticity of demand formula; Formula required: income elasticity of demand = (percent change in quantity demanded)/(percent change in income)
Optimal input in the case of one variable input; compare VMPL with wage rate
Optimal input use in case of two variable inputs; use ratio MPL/w and MPK/r
Given inverse demand function and cost functions identify profit maximizing quantity and price
Given total cost information, identify fixed and variable costs; key formulas: TC = TFC + TVC; ATC x Q = TC; AVC = TVC/Q;
Graphical application of the shut-down rule
Relation of optimal prices in two different markets for a firm given price elasticities of demand; key formula: MR = P(1 + 1/Ed) – information seen in class but some clarification to be provided

Short Answer Section

(10 points) Cournot duopoly – determine reaction functions, output levels, equilibrium price and profits of each firm given market demand function and cost functions of each firm

(10 points) Payoff matrix given. Determine Nash equilibrium/equilibria;determine secure strategy; determine dominant strategy; determine if/how collusion is possible in an infinitely repeating game, formula required: (profit from cheating – profit from collusion)/(profit from collusion – profit in Nash equilibrium) < 1/i; determine if/how collusion is possible with a finite game with a definite end; determine if/how collusion is possible with a finite game and an indefinite end

(10 points) Compare/contrast the following pricing strategies: first degree price discrimination, second degree price discrimination, third degree price discrimination, block pricing, and two-part pricing. This question is conceptual: no calculations are required.