Submitted by: Submitted by hayley92
Views: 260
Words: 755
Pages: 4
Category: Societal Issues
Date Submitted: 11/09/2012 04:15 AM
1. Does the production function Q = l + k exhibit increasing return to
scale, constant return to scale or decreasing return to scale? Prove your
answer, give definitions of the notions and comment on the result [15
MARKS]
ANSWER:
If output increases more than proportionally/proportionally/less than
proportionally then we speak of increasing/constant/decreasing return to
scale.
IRS/DRS/CRS respectively correspond to , >,1
2. Consider the constant-elasticity demand function Q = AP−ε
where A,ε>0. [15 MARKS]
a. Solve for the inverse demand function p(Q)
b. Calculate the demand price elasticity
c. For what values of ε is the demand elastic? For what values of ε is the
demand inelastic?
ANSWER:
3. Solve the following game, comment on your result by explaining the
notions you use.[15 MARKS]
A strategy is dominant if, regardless of what any other players do, the strategy
earns a player a larger payoff than any other. Hence, a strategy is dominant if it
is always better than any other strategy, for any profile of other players' actions.
Depending on whether "better" is defined with weak or strict inequalities, the
strategy is termed strictly dominant or weakly dominant. If one strategy is
dominant, than all others are dominated. For example, in the prisoner's
dilemma, each player has a dominant strategy.
4. Compare and contrast the basic components of the Solow and the
Romer model [15 MARKS]
ANSWER: Solow model technology is exogenous
Romer model: technology is endogenous and determined within the
model
5. Compare and contrast the “Schumpeter hypothesis” and the
“replacement effect”. Discuss whether they are inconsistent with each
other [15 MARKS]
- The first one concentrates on the capacity of to invest in R&D: large
firms tend to have greater capacity in terms of
High fixed cost: only large firm able to bear •
Diversification of risk within large (conglomerate) firm •
Market power is necessary to recover R&D costs with large...