Lecture 1

Question 1

What do producers want?

Answer 1

Maximize their profits

Question 2

What are profits (π’)?

Answer 2

Revenues - costs

Question 3

What are revenues

Answer 3

Sum of sales (p*q)

Question 4

How are costs defined?

Answer 4

By a cost function (C(q))

Question 5

What are marginal cost?

Answer 5

mc(q) = ∂C(q) / ∂q

Question 6

What are average cost?

Answer 6

ac(q) = C(q) / q

Question 7

What are variable cost?

Answer 7

Vary with quantities

C(q) = VC(q) + FC

Question 8

What are sunk cost?

Answer 8

Cost that have already been inccurred (irrelevant to the optimization)

Question 9

Until what point do you go on producing?

Answer 9

As long as you make marginal profits

Question 10

When is q* optimal?

Answer 10

mr(q) = mc(q)

Question 11

What is perfect competition?

Answer 11

Each producer has no effect on market values -> price is given

Question 12

What is the first equality that follows from price being given?

Answer 12

π = pq - C(q) -> mr(q) = p = mc(q)

Question 13

What happens in the short run?

Answer 13

π can be positive

Question 14

What happens in the long run and why?

Answer 14

Zero-profit, because of the number of firms

Question 15

What is a monopoly?

Answer 15

A unique producer

Question 16

What does the monopolist determines?

Answer 16

Jointly determines the price and quantity on the market (through demand)

Question 17

What is the equality of the monopoly?

Answer 17

π = p(q)q - C(q) where p(q) is the demand -> mr(q) = mc(q)

Question 18

What happens when there is less quantity?

Answer 18

Higer prices in a monopoly than in a competitve market

Question 19

What is a consumer willingness to pay?

Answer 19

The maximum price at which the consumer would still buy the product

Question 20

What does the WTP represents?

Answer 20

The marginal value of the product to the consumers

Question 21

What is given for every product quantity?

Answer 21

Demand gives you the willingness to pay for consumers for the marginal unit of product

Question 22

What is consumer surplus?

Answer 22

Indicates how much the consumers benefit from the existence of the marrket for this product (profit for consumers)

Question 23

What is the surplus generated by each unit?

Answer 23

The value of this unit (WTP) - price paid

Question 24

What is consumer surplus (equality)?

Answer 24

The sum (over units) of the surplus generated by each unit

Question 25

What is the total surplus?

Answer 25

The surplus of all economic agents

Question 26

What is producer surplus?

Answer 26

The profits generated by producers

Question 27

What is the total surplus (equality)?

Answer 27

CS + PS (+ government revenues if it exists)

Question 28

Why do we look at the total surplus?

Answer 28

An indicator of social welfare

Question 29

Where does the total surplus does not say anything about?

Answer 29

Distribution, inequalities, fairness

Question 30

What is Pareto efficient?

Answer 30

If nobody can be made better off without making another agent worse off

Question 31

What is game theory?

Answer 31

It studies strategic interactions -> What's the best action when my payoff depends on it, some external parameters and the action of others?

Question 32

What is constrained optimization?

Answer 32

What's the best action when my payoff depends on it and some external parameters?

Question 33

Who studies constrained optimization?

Answer 33

Consumer and producer theory

Question 34

What is a game?

Answer 34

Any situation in which agents (players) interact in a strategic manner

Question 35

A game is consituted by:

Answer 35

- for each player, the possible actions they can choose from - for each player, the payoffs associated to the possible outcomes

Question 36

What timing can a game have?

Answer 36

Simultaneous vs sequential and one-shot vs repeated

Question 37

What information does a game have?

Answer 37

Incomplete information

Question 38

What is a simultaneous game?

Answer 38

Players play at the same time without knowing what the others play

Question 39

What is the Nash Equilibria?

Answer 39

The set(s) of actions in whicch every player is best-respondiing to the others -> we want to find this

Question 40

What if an action set is continious?

Answer 40

Best-response function

Question 41

What is cournot competition?

Answer 41

Firms compete over quantities

Question 42

Does a NE always exist?

Answer 42

Yes, but are generally not unique

Question 43

What is uniqueness?

Answer 43

Multiplicity can be seen as a limitation

Question 44

Does a pure strategy NE always exist?

Answer 44

No

Question 45

When does a player uses a mixed strategy?

Answer 45

If they radomize ('alternate') between actions

Question 46

When do players only ever randomizes?

Answer 46

Between actions that lead to the same expected payoff (given others' strategy?

Question 47

What is sequential game?

Answer 47

Players move one after another, observing the previous moves

Question 48

What are they represent in?

Answer 48

Their extenisve form -> a tree in which each branch is a possible move, the leaves are the payoffs

Question 49

What do you want to find in a sequential game?

Answer 49

Subgame Perfect Equilibirum

Question 50

What is a Subgame Perfect Equilibirum?

Answer 50

Strategies for eacch possible move, the player choses the best action

Question 51

How can you solve a Subgame Perfect Equilibirum?

Answer 51

Backward induction -> rules out non-credible threats

Question 52

What are bayesian games?

Answer 52

Some or all players are uncertain about other players' type

Question 53

What do you want to find in Bayesian games?

Answer 53

We want to find the Bayes Nach Equilibria

Question 54

What is the Bayes Nach Equilibria?

Answer 54

Each player should best-respond in expectation (at each move, given information)

Question 55

What are hidden types?

Answer 55

Types can be anything that makes the incetives of the players uncertain (players preferences (WTP/information on the environment/action set)

Question 56

What is private information?

Answer 56

What only this agent knows

Question 57

What do players have?

Answer 57

Beliefs about each other's types, but also about each other's beliefs (k-th order beliefs)

Question 58

What is common knowledge?

Answer 58

Everyone knows it, and everyone knows that everyone knows it

Question 59

When are hidden types beneficial?

Answer 59

If I am a type II prof, you can better stay silent

Question 60

When are hidden types detrimental?

Answer 60

Adverse selection

Question 61

What is the neo-classical definition of behavioral economics?

Answer 61

Agents' utility and beliefs are 'objective'

Question 62

What is the behavioral I definition of behavioral economics?

Answer 62

Agents' utility and beliefs can be arbitrary but actions are consistent

Question 63

What is the behavioral II definition of behavioral economics?

Answer 63

Agents' actions are inconsistent, preferences do not seem stable

Question 64

What are examples of behavioral traits and biases?

Answer 64

- Non-Bayesian updating - Framing effect - Present bias - Inequality aversion

Question 65

What is Non-Bayesian updating?

Answer 65

Agents' beliefs do not follow the probabilistic rules and properties

Question 66

What is the framing effect?

Answer 66

Choices vary with the way the outcome is presented, while the outcome is the same

Question 67

What is the present bias?

Answer 67

In intertemporal choices, present is overweighted with respect to all future periods

Question 68

What is the inequality aversion?

Answer 68

Agents act in a way only consistent with a preference for overall fairness