MGEC58H3 Study Guide - Final Guide: Profit Maximization, Becquerel, Algebraic Expression

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greygoat862

13 Dec 2018

School

UTSC

Department

Economics for Management Studies

Course

MGEC58H3

Professor

Harry Krashinsky

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Document Summary

Solutions to problem set 4 variable pay. 1(a) we begin by determining how the worker will react to any contract set out by the firm. To do so, we know that workers maximize their utility: As such, we know that workers will set optimal effort as e = b. The firm proceeds to maximize profits given this knowledge. In particular, the firm will maximize its profits as follows: Since it"s specified in the question that q = e, then we can make the substitution: Also, since we know that the worker will set e = b, then we can make that substitution here: In this case, the firm will seek to determine the optimal b: d /db = 1 2b = 0. In this case, the firm chooses to set b = 0. 5. B = 0. 5 a + 0. 125 = 0. Since the alternative utility is zero, the firm can adjust a as follows:

Related Questions

Long-run factor demand

A price-taking firm (p = 100) chooses amounts of labor and capital that maximize its profits. It has decreasing returns to scale Cobb-Douglass production function: q(L, K) = L ^(1/6) K ^(1/8). The wage rate and rental rate of capital are 10 (w = r = 10).

(a) Set up the profit function.

(b) Provide the two profit maximization conditions for this case (no need to solve for L , K ).

bronzegoose52

I need help with e-h

Two firms set prices in a market with demand curve Q = 6 â p, where p is the lower of the two prices. If firm 1 is the lower priced firm, then it is firm 1 that meets all of the demand; conversely, the same applies to firm 2 if it is the lower priced firm. For example, if firms 1 and 2 post prices equal to 2 and 4 dollars, respectively, then firm 1âas the lower priced firmâmeets all of the market demand and, hence, sells 4 units. If the two firms set the same price p, then they each get half of the market, that is, they each get 6âp . Suppose that prices can only be quoted in dollar units, such as 2 0, 1, 2, 3, 4, 5, or 6 dollars. Suppose, furthermore, that costs of production are zero for both firms. Finally, suppose that firms want to maximize their own profits.

(a) Show that the strategy of posting a price of 5 dollars weakly dominates the strategy of posting a price of 6 dollars. Does it strictly dominate as well?

(b) Are there any other (weakly) dominated strategies for firm 1? Explain.

(d) Suppose for a moment that this market had only one firm. Show that the price at which this monopoly firm maximizes profits is 3 dollars.

(e) Can you give a reason whyâin any price competition modelâa duopoly firm would never want to price above the monopoly price? (Hint: When can a duopoly firm that prices above the monopoly price make positive profits? What would happen to those profits if the firm charged a monopoly price instead?)

(g) Show that when we restrict attention to the prices 1, 2, and 3 dollars, the (monopoly) price of 3 dollars is a strictly dominated strategy. (h) Find the outcome of iterated elimination of (weakly) dominated strategies.

(h) Find the outcome of iterated elimination of (weakly) dominated strategies.

blushpug345

a). In oligopoly industries, when one firm increases its output, price ___ (options: Increases; Decreases; Stays the same).

b). This increases the profit of the firm if the ___ (options: Quantity; Price) effect is greater than the ___ (options: Quantity; Price) effect.

c). Since firms will increase output as long as they believe that individual profits will increase:

1). firms will produce a perfectly competitive output.

2). firms will produce more output than is optimal for the industry as a whole.

3). firms will be able to maximize individual profits.

4). firms will produce monopoly output.

lilacelephant948

MGEC58H3 Study Guide - Final Guide: Profit Maximization, Becquerel, Algebraic Expression

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