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(ECON214)[2009](s)final~752^_10238.pdf
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Econ214 Managerial Microeconomics
Spring, 2009
Final Exam
Instructor: Yan YU
HKUST








Name: _______________

ID number:_______________

Total Score: _________________





General Instruction: This is a closed-book examination. You have 180 minutes. Please check first if you have a total of 8 pages including this cover page. You may use calculators.


I. Multiple Choice; (only one correct answer for each question. 5 points each, 25 points total)



1. (9.1) You are the manager of a gas station and your goal is to maximize profits. Based on your past experience, the elasticity of demand by Texans for a car wash is -4, while the elasticity of demand by non-Texans for a car wash is -6. If you charge Texans $20 for a car wash, how much should you charge a man with Oklahoma license plates for a car wash? A. $1.50 B. $15.00 C. $18.00 D. $20.00

2. (9.3, 2.4) A local video store estimates their average customer's demand per year is Q = 7 - 2P, and knows the marginal cost of each rental is $0.5. How much should the store charge for an annual membership in order to extract the entire consumer surplus via an optimal two-part tariffs strategy? A. $9 B. $10 C. $11 D. $12

3. (8.5) Management and a labor union are bargaining over how much of a $50 surplus to give to the union. The $50 is divisible up to one cent. The players have one-shot to reach an agreement. Management has the ability to announce what it wants first, and then the labor union can accept or reject the offer. Both players get zero if the total amounts asked for exceed $50. Otherwise, each gets what it requested. Which of the following is not a Nash equilibrium? A. Management requests $49.99 and the labor union accepts $0.01 B. Management requests $30 and the labor union accepts $10 C. Management requests $25 and the labor union accepts $25 D. Neither management requesting $25 and the labor union accepting $25 nor management requesting $30 and the labor union accepting $10 are Nash equilibria

4. (3.2) When a demand curve is linear, A. Demand is elastic at low prices B. Demand is inelastic at low prices C. Demand is unitary elastic at low prices D. The elasticity is constant at all prices

5. (3.5) The demand for good X has been estimated to be lnQXd = 100 - 2.5 lnPX + 4 lnPY + lnM. The cross price elasticity of demand between goods X and Y is A. -2.5 B. 4.0 C. -2.5% D. 4.0%

II. Short questions. (Answers must be concise! 34 points total)


1. (6.5 ) What is Lerner index? What does it measure? What is the relationship between Lerner index and own price elasticity of demand? (No proof of the relationship is required.) (6 points)





2. (8.4, 8.5) What is a dominant strategy? Design a game where one of the players has a dominant strategy. Find the Nash equilibrium of the game you designed. (6 points)













3. (8.12, 8. 10) What is Texas Shoot-out rule? Is