Flashcards in Term 2 Deck (39):
What is the formula for elasticity of substitution?
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)
How do you find the optimal input values in SR production function
Inverse the production function
How do you find the cost function for the SR?
Take the optimal values and put them into the cost function
How does the firm minimise long run cost?
Choose the part of the SR that is at the bottom
How do you derive a LRMC?
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
What must you do when calculating profit max or cost min?
What is a firms SR shut down condition?
P < Min AVC
What feature must a cost function have to find profit max?
Must have Diminishing Returns to scale
0< Power <1
What is a firms LR shut down condition?
P < Min VC
Define contingent v unconditional demand
Contingent is dependent on cost min
Unconditional is profit max
At what point on the demand curve will a monopolist choose to opperate?
How do you prove market power?
Show price is greater than MC
How do you calculate markup?
How do you calculate MR?
How do you calcualte PS?
How do you work out PS under 1st degree price discrimination?
How do you check if an equilibrium is unique?
Check every possible price sollution
What occurs if the P2 is greater than monopoly price in Bertrand?
Firm 1 sets a monopolist price
What does the reaction function look like graphically?
If P2 Less than C, charge C
If P2 is greater than C, shift slightly above 45
Discuss modified Bertrand Model?
Differentiated products, competing on price
Expected prices are perfect
How do you solve a stackleberg model?
Create firm 2s reaction function and plug into firm 1's profit max
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
What is a strictly dominant strategy?
One that is always the best?
What is a strictly dominated strategy?
One that is always the worst
What is the iteration process?
Find strictly dominant strategies and remove all others
Find strictly dominated strategies, remove them
What is a Nash Equilbrium>
Each player is playing the best stratergy for other players stratergies
What is a strictly dominant stratergy Equilibrium?
Equilibrium where each player plays her strictly dominant strategy
A Unique Nash equilibrium
What are the drawbacks of Nash equilbriums?
Possibility of Multiple Nash's
Not Pareto Efficent
May not exist in pure stratergies
How do you create a Mixed Stratergy Nash equilbrium?
Assign probabilities to each response
Write response in terms of other persons probabilities
What is extensive form representation?
How do you find a Nash in sequential games?
Express in table, Star Method
How do you determine if rational/
Express in extensive form and review
What is a SPNE?
Sub game perfect nash equilbrium
Best stratergy in every subgame
What is the difference between a partial and general equilibrium?
Partial is one market
General is all markets
What is the notation for a general equilbrium
What is an edgworth box?
Represents the endownments
What is the determiner for a feasible allocation?
x1A+X1B < w1=w1A+w1B