PART 1: True/ False & short answer (30 points/ @2points)

1. The law of one price states that a homogeneous good trades at the same price no matter who buys
it or which firm sells it.
2. General equilibrium theory explain the behavior of supply, demand, and prices in a whole economy
with several or many interacting markets, by seeking to prove that the interaction of demand and
supply will result in an overall general equilibrium.
3. Any point in the Edgeworth box represents a fully employed allocation of the available resources to
x and y.
4. Many of the allocations in the Edgeworth box are technically efficient. FALSE (inefficient)
5. Rate of product transformation (RPT) between two outputs is the slope of the production possibility
frontier for those outputs. FALSE (negative slope)
6. Rate of product transformation (RPT) records how x can be traded for y while continuing to keep the
available productive inputs efficiently employed.
7. Walras’ law shows that the total value of excess demand is larger than zero at any set of prices.
FALSE (zero)
8. An allocation of resources is Pareto efficient if it is not possible (through further reallocations) to
make one person better off without making someone else worse off.
9. Nash Equilibrium is a strategy profile (S1*, S2*, … , Sn*) such that, for each player i= 1, 2, … , n, Si* is a
best response to the other player’s equilibrium strategies S-1*.
10. A strategy that is a best response to any strategy the other players might choose is called a
dominant strategy.
1. A monopoly will choose to operate only in regions where the market demand curve is inelastic.
FALSE (Elastic)
2. Since D > MR for a monopolist, at the profit-maximizing output, the monopolist will set a price equal
to marginal cost. FALSE (greater than)
3. Monopoly power adalah kemampuan perusahaan melakukan eksploitasi pasar dalam rangka
mencapai laba maksimum hanyalah sebatas kemampuan mengatur jumlah output dan harga.
4. By practicing first-degree price discrimination, the monopolist can extract all consumer surplus and
hence resulting no deadweight loss.
5. Third-degree price discrimination done by a monopolist that separate its buyers into a few
identifiable markets and apply a different pricing policy in each market.

Jawaban:

false: 4, 5, 7, 11, 12
 The graph shown here illustrates the demand curve, marginal revenue curve,
and the cost curves for a profit-maximizing monopolist with constant costs.

1. What price and quantity will be charged under perfect competitive market?
2. What area represents the firm’s profit under perfect competitive market?
3. What price and quantity will this single price monopolist charge?
4. What area represents deadweight loss if this firm can perfectly price discriminate?
5. What area represents the profit if this firm can perfectly price discriminate?
6. What area represents the monopolist profit if this firm chooses a single price?
7. What area represents deadweight loss (“DWL”) if this firm chooses a single price?

Jawaban:

1. Competitive: D=MC => Q3, Pc

2. Competitive profit= 0
3. Monopoly: MR=MC => Q1, Pb
4. perfectly price discriminate DWL: 0
5. perfectly price discriminate profit: Pc-k-Pa
6. Monopolist profit=Pc-j-f-Pb
7. Monopolist DWL: j-k-f
General Equilibrium (30 poin). Dalam sebuah island economy yang terdiri dari 2 aktivitas ekonomi yang
menghasilkan barang X dan barang Z. Dalam perekonomian hanya terdiri dari dua faktor produksi yaitu
tenaga kerja L dan lahan N yang supply-nya terbatas. L adalah total jumlah tenaga kerja yang tersedia
demikian juga N adalah total luas lahan yang tersedia. Fungsi produksi kedua aktivitas ekonomi tersebut
adalah sebagai berikut:
1
X =( α L + ( 1−α ) N )
ρ ρ ρ
X X

1
Z=( β L + ( 1−β ) N Z )
ρ ρ ρ
Z

Dimana L X adalah jumlah tenaga kerja yang digunakan utk aktivitas produksi X, LZ adalah jumlah
tenaga kerja yang digunakan untuk aktivitas produksi Z. N X adalah luas lahan yang digunakan untuk
aktivitas produksi X dan N Z adalah luas lahan yang digunakan untuk aktivitas produksi Z. Sementara
0< α , β< 1 dan ρ<1 adalah parameter.
Sementara utility dari konsumen (U) direpresentasikan oleh fungsi
θ 1−θ
U =X Z
Dimana 0<θ <1 adallah parameter.

Endowment constraint juga berlaku, yaitu L X + L Z =L dan N X + N Z =N .

a) (5 poin) Nyatakan problem dari benevolent social planner dengan bahasa optimisasi.
b) (5 poin) Turunkan first order condition dari optimisasi tersebut (Catatan: Tidak harus diselesaikan
sampai solusinya).
c) (5 poin) Nyatakan problem dari competitive market mechanism dalam bahasa optimisasi.
d) (5 poin) Turunkan first order condition dari optimisasi tersebut ((Catatan: Tidak harus diselesaikan
sampai solusinya).
e) (10 poin) Selesaikan persamaan first order condition pada point b) sampai menemukan solusi
general equilibrim.
1.
Oligopolistic Game Theory (20 points). Gojek and Grab are oligopolistic firms that could collude to
dominate the ride-sharing market. In this scenario, both firms have the choice to set their prices high or
low, and wants to achieve the highest possible profit. If both firms choose High then each earn a profit
of $2000. If one firm choose High and the other choose Low then the firm choose High obtains a profit
of $900, whereas the firm choosing Low earn a profit of $2500. If both firms choose Low then each earns
a profit of $1000. The firms are aware of the payoffs but do not collude when making their decision.

a) (2 points) Define the players

b) (2 points) Define the strategy
c) (3 points) Draw the normal form
d) (3 points) Draw the extensive form
e) (5 points) Find the dominant strategy, if any
f) (5 points) Find the Nash equilibrium, if any

Jawaban:

a. Define the players: Gojek & Grab

b. Define the strategy: Low price and High price
c. Draw the normal form:

Grab
High Low
Goje High 2000; 2000 900; 2500
k Low 2500; 900 1000; 1000

d. Draw the extensive form

H 2000; 2000

H Grab
L 900; 2500

Gojek
H 2500; 900
L Grab

L 1000; 1000

e. Find the dominant strategy, if any

Grab= Low Price
Gojek= Low Price

f. Find the Nash equilibrium, if any

When both Grab & Gojek choose Low Price
Monopoly (20 points). Suppose the market for private jet has a linear demand function of the form Q =
2,000 - 20P while the costs of the monopoly producer be given by C(Q) = 0.05Q2 + 10,000.

a. (7 points) What are the quantity and price that maximize the monopolist profit?
b. (3 points) At the monopoly’s preferred output level, please calculate profits.
c. (10 points) The monopolist then realized that it is possible to discriminate perfectly among
its buyer. Given this situation, please calculate the monopolist profit.