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Eco204y Final 2013s
Eco204y Final 2013s
UNIVERSITY OF TORONTO
Faculty of Arts and Sciences
August Examinations 2013
ECO 204 Y1Y
Duration: 3 hours Total Points: 100 points
Examination Aid Allowed: Calculator.
Instructions:
- This exam consists of 3 questions in 19 pages, single-sided.
Please Write Your Name and ID # as these appear in ROSI
Last Name:
First Name:
9-Digit ID #:
YOU CANNOT LEAVE THE ROOM DURING THE LAST 15 MINUTES OF THE EXAM
PLEASE REMAIN SEATED UNTIL THE PROCTOR ANNOUNCES THAT YOU CAN LEAVE THE ROOM.
KEEP ANSWERS AS BRIEF AS POSSIBLE
Question Maximum Possible Points Score
1 50
2 30
3 20
Total Score out of 100 =
Page 2 of 19
QUESTION 1 [50 POINTS]
204 Cupcakes owns and operates shops across the city of Two-ronto (TwO) and it is the only company that
sells cupcakes in TwO. All stores are identical and each store has ample capacity.
(1.1) [3 POINTS] The quantity of cupcakes that can be produced at shop per day is given by the production function:
)
Here
are store-specific parameters. Calculate: the optimal number of workers and cash
registers required to process an (exogenously given) target output
cost function
Show all necessary calculations.
Page 3 of 19
(1.2) [3 POINTS] [THIS PART IS INDEPENDENT OF ALL PARTS BELOW] True or false: an individual store has constant returns to
scale but diseconomies of scale. Show all necessary calculations.
Page 4 of 19
(1.3) [3 POINTS] [THIS PART IS INDEPENDENT OF ALL PARTS BELOW] Calculate store s marginal cost due to a small increase in
the wage rate (i.e. the change in due to a change in
Here are exogenously given parameters. Suppose that all stores act independently and compete with each
other as Cournot rivals in a one-shot game. Calculate the profit maximizing output and price at each store; the total
quantity of cupcakes sold across all stores; the gross profit at each store; and the gross profit across all stores. Show all
necessary calculations and state all assumptions and dont forget to use
Page 7 of 19
(1.6) [3 POINTS] [EXCEPT FOR PART 1.7 THIS PART IS INDEPENDENT OF ALL OTHER PARTS BELOW] Calculate the
Recall that
Solve for the pure strategies Nash Equilibrium in a simultaneous move one shot game where
each store can produce either the Cournot output or the Cartel output. Please enter your answers in the matrices
below. Show all necessary calculations and state all assumptions
Page 12 of 19
(1.11) [4 POINTS] Suppose that the simultaneous move game in part (1.10) is played repeatedly forever. Solve this
dynamic game. Show all necessary calculations and state all assumptions.
Page 13 of 19
QUESTION 2 [30 POINTS]
In Project 3 you used the Supermarket Scanner Data Set containing various data on reg and lit varieties of two
brands of soda (X and Y) sold in seven stores over 52 weeks.
The following table contains a portion of the regression output for the supermarkets demand function for Brand Y: the
quantity of brand Y was regressed on a constant, the price of brand X, the price of brand Y and a dummy variable
which takes the value 1 if there was an in-store promo (i.e. not a price promo) on brand Y (and 0 otherwise):
Dependent Variable =
Coefficient
Constant 40091.17132
207252.3658
-1427678.133
16719.61367
The following table contains a portion of the regression output for the supermarkets function for Brand Y: the
of brand Y was regressed on the quantity of brand Y:
Dependent Variable =
Coefficient
Constant 0
0.01803
Throughout this question assume that the supermarket has ample capacity and answer all parts up to 4 decimal places.
Page 14 of 19
(2.1) [5 POINTS] Suppose that currently:
without computing and using the new output. Show all necessary
calculations. Note: Due to rounding errors your answer in part (2.2) may be slightly different from the answer in part
(2.1) this is OK.
Page 16 of 19
(2.3) [10 POINTS] Suppose that currently:
() ()
And only examine the case when the company produces at full capacity. Show all necessary calculations.
Page 19 of 19
(3.2) [10 POINTS] Suppose that the solution to this PMP is:
() () ()
You are told that at the optimal solution:
Whats the most this company should pay per unit of extra capacity? Show all necessary calculations and calculate all
numbers to 4 decimal places.