This study source was downloaded by 100000853729349 from CourseHero com on 11 02 2022 13 51 43 GMT 05 00 https www coursehero com file 131551971 EC1A3 LT 2021 22pdf LSE LT 2022 EC1A3 Page 1 of 6 January 2022 Exam EC1A3 Microeconomics I 2021 22 syllabus only not for resit candidates Instructions to candidates This paper contains seven questions Answer all questions Time Allowed Writing Time 2 hours You are supplied with No additional materials You may also use No additional materials Calculators Calculators are allowed in this exam This study source was downloaded by 100000853729349 from CourseHero com on 11 02 2022 13 51 43 GMT 05 00 https www coursehero com file 131551971 EC1A3 LT 2021 22pdf LSE LT 2022 EC1A3 Page 2 of 6 SECTION A Answer all questions There are 5 questions Each question carries 6 points Choose the correct answers no explanation needed For each question there might be more than one correct answer All correct answers get proportionate points For example if there is only one correct answer to a question the correct answer gets 6 1 6 points if there are two correct answers to a question each correct answer gets 6 2 3 points if there are three correct answers to a question each gets 6 3 2 points if there are four correct answers to a question each gets 6 4 1 5 points and so on If one or more wrong answers to a question are chosen 0 points are given for the whole question no matter how many correct answers are also chosen Question 1 6 marks Consider a Cournot competition between two identical firms facing the market demand curve p 16 2Q where p is price and Q is quantity demanded Each firm s total cost curve is C q 4q where C q is total cost and q is quantity produced Then in the Nash Cournot equilibrium a Profit maximizing level of output is 3 b The quantity each firm will produce is lower than that if they were to compete in prices c The profit of each firm is 12 d The profit of each firm is 8 e Profit of each firm is higher than if they were to compete in prices Question 2 6 marks Which of the following statements are true a A rational CEO of a firm will always maximise profits b The model of rationality is a mathematical model we use in economics to make predictions about how individuals behave in economic situations c The model of rationality is a mathematical model we use in economics to make recommendations about how individuals should behave in economic situations d Transitivity of an individual s preferences implies that the individual can always compare between any two alternatives in their set of alternatives e Completeness of an individual s preferences implies that the individual can always compare between any two alternatives in their set of alternatives This study source was downloaded by 100000853729349 from CourseHero com on 11 02 2022 13 51 43 GMT 05 00 https www coursehero com file 131551971 EC1A3 LT 2021 22pdf LSE LT 2022 EC1A3 Page 3 of 6 Question 3 6 marks Consider the following game Which of the statements below are true for this game L M R U 2 2 1 1 1 1 M 1 1 1 1 1 2 D 1 1 2 1 1 1 a The Row player has a strictly dominated action b The Column player has a strictly dominated action c There is no Nash equilibrium for this game d The row player playing D and the column player playing R constitutes a Nash equilibrium of this game e There are two pure strategy Nash equilibria to this game f There is no mixed strategy equilibrium in this game Question 4 6 marks You are an aspiring monopolist and planning to sell a new gadget you have developed The demand in the LSE campus for this gadget is given by Q 50 2p and your marginal cost of producing each gadget is 10 Which of the following statements are true about the short run a As a simple monopolist you will sell 15 gadgets b As a simple monopolist you will sell each gadget for 10 pounds c As a simple monopolist you will sell each gadget for 25 pounds d As a fully discriminating monopolist you will make a profit of 225 pounds e As a fully discriminating monopolist you will make a profit of 450 pounds This study source was downloaded by 100000853729349 from CourseHero com on 11 02 2022 13 51 43 GMT 05 00 https www coursehero com file 131551971 EC1A3 LT 2021 22pdf LSE LT 2022 EC1A3 Page 4 of 6 Question 5 6 marks You are thinking about investing in one of the following three projects Project A costs 20k pounds today and pays off 30k pounds in two years Project B costs 40k pounds today and pays off 60k pounds in two years Finally Project C involves paying nothing today and receiving no payments in the future Which of the following statements are true a Whatever the interest rate the net present value NPV of project C is zero b Suppose that there are no credit markets so you cannot borrow or save You surely prefer project A as it costs half as much as project B c Suppose that credit markets are perfect There is an interest rate level so that for each interest rate higher than that level you would prefer Project A to Project B d Suppose that credit markets are perfect There is an interest rate level so that for each interest rate higher than that level you would prefer Project B to Project A e Suppose that credit markets are perfect Either you prefer projects A and Project B to Project C or you prefer Project C to projects A and B or you are indifferent between the three projects This study source was downloaded by 100000853729349 from CourseHero com on 11 02 2022 13 51 43 GMT 05 00 https www coursehero com file 131551971 EC1A3 LT 2021 22pdf LSE LT 2022 EC1A3 Page 5 of 6 SECTION B Answer the following TWO questions Each question carries 35 points Question 6 35 marks Consider the following strategic situation that has been enacted in a recent experiment Participants are grouped into groups of n participants Participants sit each in front of their own computer in the lab and decide about whether to volunteer or not Each group was given two minutes to decide with the experiment ending as soon as someone volunteered If no one volunteered each group member received a payment of 1 Anyone who volunteered received 1 75 while the other group members who have not volunteered each received 2 a Translating this situation into a simultaneous move game write the primitives of the model the set of players the set of actions for each player and the preferences of each participant on profiles of actions by all players 5 marks b Assume that n 2 write this game in a matrix form 6 marks …