Assignment 1
Due date:
6th September 2007Represents: 25% of assessment
Requirements
Nature: Individual or Group (no more than 2) assignment.
Format: Topic Specific exercises
Word length: No more than 2,000 words for individual assignments and 4,000 words for group
assignments. That is no more than 1,000 words per exercise. Diagrams are not part of
the word count..
Submission: This assignment must be submitted electronically on DSO by on-campus and offcampus
students by 11:59pm on the due date (please refer to unit guide). In addition,
on-campus students must submit a hard copy to the Deakin Business School
assignment box located in the Toorak campus by the due date. Since the DBS office
closes at 5pm , submissions after 5pm and before 9am the next morning will still be
accepted.
Topic Specific Exercises:
There are 4 exercises set out below. Students who are submitting individual assignments must complete
questions 1and 2 while those submitting group assignments (groups of 2) must complete questions 1-4.
Use diagrams wherever possible in your answers.
Exercise 1
The price-quantity data in the following table will graph a straight line demand curve. Use both the
elasticity measure and the total revenue curve to determine the elasticity of demand for each price
change. What can you conclude about the relationship between the slope of the demand curve and its
elasticity ? Answer the question using both numerical and graphical methods.
Product Price ($) Quantity Demanded Total Revenue($)
7 0
6 1
5 2
4 3
3 3
2 4
1 5
Exercise 2
The demand curve for a monopolist is:
P= 490 –2Q
Thus marginal revenue (MR) is :
MR= 490 - 4Q
and total cost (TC) is
TC=20+10Q +2Q
2Thus marginal cost (MC) is
MC= 10 +4Q
a) Solve for the profit maximizing level of output and price for the monopolist. Calculate the profit
b) Draw a graph labeling the profit-maximizing level of output and price. Label profit on the graph as well
.Exercise 3
The demand for automobiles in a certain country is given by
D = 15,000 – 200P
where P is the price of a car. Supply by domestic automobile producers is
S = 5,000+ 50 P.
a)Assuming that the economy is closed, find the equilibrium price and production of automobiles
b) The economy opens to trade. The world price of automobiles is 30. Find the
domestic quantities demanded and supplied and the quantity of imports or exports.
Who wil1 favour the opening of the automobile market to trade, and who will oppose it?
c) The government imposes a tariff of 5 units per car. Find the effects on domestic 'quantities demanded and
supplied and on the quantity of import or export. Also find the revenue raised by the tariff. Who wil1 favour the
imposition of the tariff, and who wil1 oppose it?
Exercise 4.
Consider the following game. Assume it is played one time and one time only. The game represents the collusive
agreements of two countries who agree to fix the output of oil. Payoffs to the two countries ( i.e. profit to Country A
and profit to Country B) are represented as follows:
Country B
Country A Collude: limit output Defect: increase output
Collude: limit output ( 900 , 600) (700, 800)
Defect: increase output (1100 , 300) (800, 400)
Payoff Order: (A, B) i.e. in each cell the first number belongs to Country A and the second number belongs to
Country B.
Answer the following questions:
a) Does Country B have a dominant strategy? If so, to do what? Does Country A have a dominant
strategy? If so, to do what?
b) Solve for the Nash Equilibrium of the game.
c) Is this game a prisoner’s dilemma? Explain why or why not?
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