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Econ Written Report

846 words - 3 pages

Au Nga Sze 13085067DAF1605Introduction to EconomicsWritten report of Question 5.5 and 6.1Question5.5Mr. Smart designed a reward scheme for Peter and Paul. One is gives oneself $10000 bonus, and the other one is gives another salesman $30000 bonus. Peter and Paul can choose either the first one or the second one.Part (a) requires us to construct a payoff matrix of Peter and Paul. If both Peter and Paul choose to give oneself $10000 bonus, both of them can get $10000. If Peter chooses to give oneself $10000 bonus, Paul chooses to give another salesman $30000 bonus, Peter can get $40000 and Paul can get $0. If Paul chooses to give oneself $10000 bonus, Peter chooses to give another salesman $30000 bonus, Paul can get $40000 and Peter can get $0. If both Peter and Paul choose to give another salesman $30000 bonus, both of them can get $30000.For part (b), if they can collude, both of them will give another salesman $30000 because they can get the maximum reward in total.For part (c), if Paul chooses to cooperate (choose to give another salesman $30000 bonus), Peter will choose to give oneself $10000 bonus in order to maximize his individual reward. If Paul chooses to cheat (choose to give oneself $10000 bonus), Peter will choose to give oneself $10000 bonus, which is the most beneficial option. It is the same for Paul to do so. As a result, collusion fails.For Part (d), Nash equilibrium is an equilibrium in which each player takes the best possible action given the action of the other player. So, when both of them choose to give oneself $10000 bonus, the Nash equilibrium is attained.Question6.1In order to find out the profit maximizing output of this monopoly, which required in a(i), we first need to work out the equation of MR. As given by the question, we know that when demand curve is P=a-bQ, the MR curve will be MR=a-2bQ. The equation of demand curve is given by the question, which is P=12-0.002. So the MR curve will be MR=12-0.002(2)Q, which is MR=12-0.004Q. After knowing the MR curve, we need to figure out the MC curve. MC curve is given by the question, which is MC=3+0.001Q. The profit maximizing output is equals to MR=MC. By substituting all figures, we can have an equation of 12-0.004Q=3+0.001Q. After calculation, we can get the answer of Q=1800. As the result, the profit maximizing output is 1800 units.Part a(ii) asks for calculating the socially efficient output level. The socially efficient output level is obtained when MC=MB=D. As MC and D are given by...

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