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