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Flashcards in Term 2 Deck (39):
1

What is the formula for elasticity of substitution?

%CK/L/%CMRTS

2

Discuss the values of elasticity of substitution

High σ - MRTS does not change relative to K/L (flat)
Low σ - MRTS does change relative to K/L (curved)

3

How do you find the optimal input values in SR production function

Inverse the production function

4

How do you find the cost function for the SR?

Take the optimal values and put them into the cost function

5

How does the firm minimise long run cost?

Choose the part of the SR that is at the bottom

6

How do you derive a LRMC?

Fix Q

Find SR level of KBAR that is consistent with long run cost minimisation for Q

What does SRMC(KBAR) give for Q

Repeat for each Q
Combine all points

7

What must you do when calculating profit max or cost min?

SOC:
dSMC/dQ>0

8

What is a firms SR shut down condition?

P < Min AVC

9

What feature must a cost function have to find profit max?

Must have Diminishing Returns to scale
0< Power <1

10

What is a firms LR shut down condition?

P < Min VC

11

Define contingent v unconditional demand

Contingent is dependent on cost min
Unconditional is profit max

12

At what point on the demand curve will a monopolist choose to opperate?

Elastic Region
Positive MR

13

How do you prove market power?

Show price is greater than MC

14

How do you calculate markup?

-1/Ed

15

How do you calculate MR?

(1+1/Ed)P

16

How do you calcualte PS?

PQ-VC

17

How do you work out PS under 1st degree price discrimination?

Int P-MC

18

How do you check if an equilibrium is unique?

Check every possible price sollution

19

What occurs if the P2 is greater than monopoly price in Bertrand?

Firm 1 sets a monopolist price

20

What does the reaction function look like graphically?

For P1
If P2 Less than C, charge C

If P2 is greater than C, shift slightly above 45

Then Verticle

21

Discuss modified Bertrand Model?

Differentiated products, competing on price

Expected prices are perfect

22

How do you solve a stackleberg model?

Create firm 2s reaction function and plug into firm 1's profit max

23

How would you solve a Sttackleberg Cournot model with 3 firms?

Profit max for 2,3 under Cournot

Plug values into firm 1 for profit max

24

What is a strictly dominant strategy?

One that is always the best?

25

What is a strictly dominated strategy?

One that is always the worst

26

What is the iteration process?

Find strictly dominant strategies and remove all others

Find strictly dominated strategies, remove them

Repeate

27

What is a Nash Equilbrium>

Each player is playing the best stratergy for other players stratergies

28

What is a strictly dominant stratergy Equilibrium?

Equilibrium where each player plays her strictly dominant strategy
A Unique Nash equilibrium

29

What are the drawbacks of Nash equilbriums?

Possibility of Multiple Nash's
Not Pareto Efficent
May not exist in pure stratergies

30

How do you create a Mixed Stratergy Nash equilbrium?

Assign probabilities to each response
Write response in terms of other persons probabilities
Sove

31

What is extensive form representation?

A tree

32

How do you find a Nash in sequential games?

Express in table, Star Method

33

How do you determine if rational/

Express in extensive form and review

34

What is a SPNE?

Sub game perfect nash equilbrium
Best stratergy in every subgame

35

What is the difference between a partial and general equilibrium?

Partial is one market
General is all markets

36

What is the notation for a general equilbrium

Goods: 1,2
Individuals: A,B

37

What is an edgworth box?

Represents the endownments

38

What is the determiner for a feasible allocation?

x1A+X1B < w1=w1A+w1B

39

What is the contract curve?

A set of all pareto optimal alloactions
MRSA=MRSB