Question 1

a. Db. A

Question 2a. Bb. C

Question 3The tax will have a similar effect as to that of an increase in production costs. This will lead to an increase in marginal cost. Since, supply curve is equal to marginal cost curve, supply curve will increase and shift to the left by $6. Price received by seller: $4. a. Supply before tax: P = 4QDemand: P = 12 -2QSub Supply before tax into Demand4Q = 12 2Q6Q = 12Q = 2P = 8Equilibrium before tax: (2,8)

Supply after tax: 4Q + 6Demand: P = 12 -2QSub Supply after tax into Demand4Q + 6 = 12 2Q6Q = 6Q = 1P = 10Equilibrium after tax: (10, 1)

Price received by seller: $10

b. Consumer Surplus = (12-10) x 1 x 0.5 = $1Producer Surplus = (10-6) x 1 x 0.5 = $2Tax Revenue = 6 x 1 = $6Total Economic Surplus = 1 + 2 + 6 = $9

c.Deadweight loss of tax = ((10-8)(1)(0.5)) + ((8-4)(1)(0.5)) = 1 + 2 = $3

Question 4.

A monopolist economy will produce at a higher price where MR = MC = minATC; Whereby, in a perfectly competitive market it would sell at where marginal benefit (revenue) is equal to marginal. However in a monopolistic market, this isnt socially optimal or profit maximising. The demand curve for the monopolist is equal to the market demand curve,

Question 5a. Bugle and Clarions dominant strategy is achieved when they both cut their prices. This is because all other scenarios arent a dominant strategy: Bugle would have an extra monthly profit of $30000 if he cuts his price and Clarion maintains his price than if Bugle maintains his, and have an extra monthly profit of $18000 if both Bugle and Clarion cut their prices. Clarion would have an extra expected monthly profit of $18000 if he cut his price and Bugle maintained his, or an extra monthly profit of $12000 if both Bugle and Clarion cut their prices.

b. The Nash equilibrium for this game is (54,42) as either Bugle or Clarion cannot benefit from individually changing their decision. For instance, if Bugle tries to change and maintain their original price instead of cutting, their revenue decreases from $54000 to $36000. If Clarion tries to change and maintain their original price instead of cutting, they will earn $30000 their revenue also decreases from $42000 to $30000.

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