TECO101 Microeconomics Principles: Market Analysis and Game Theory

This assignment delves into microeconomic principles, starting with an analysis of the demand curve for bagels and calculating price elasticity. It explores profit maximization for a pizza seller, examining marginal revenue and cost curves to determine equilibrium price and quantity. The assignment further investigates the impact of taxation on market surplus, analyzing changes in consumer and producer surplus. Finally, it applies game theory to strategic decision-making, discussing dominant strategies and Nash equilibrium, and differentiating the scenarios from the classic Prisoner's Dilemma. Desklib offers a wealth of similar solved assignments and past papers for students.

Running head: MICROECONOMICS PRINCIPPLES
Microeconomics Principles
Name of the Student
Name of the University
Course ID

1MICROECONOMICS PRINCIPLES
Table of Contents
Question 1........................................................................................................................................2
Question i.....................................................................................................................................2
Question ii....................................................................................................................................2
Question iii...................................................................................................................................3
Question 2........................................................................................................................................4
Question a....................................................................................................................................4
Question b....................................................................................................................................5
Question 3........................................................................................................................................8
Question 1....................................................................................................................................8
Question 2..................................................................................................................................11
Question 3..................................................................................................................................14
Question 4......................................................................................................................................14
Question i...................................................................................................................................15
Question ii..................................................................................................................................15
Question iii.................................................................................................................................16
References......................................................................................................................................17

2MICROECONOMICS PRINCIPLES
Question 1
Question i
0 3 6 9 12 15 18 21
0
1
2
3
4
5
6
7
Demand curve
Number of packs per day (1000)
Price of Bagels ($/pack)
Figure 1: Demand curve for pack of Bagels
Question ii
Using the given demand schedule, the slope of the demand curve can be obtained as
dP
dQ = 6
18000
¿ 1
3000
Price elasticity of demand= Percentage change∈demand
Percentage change∈ price
¿ dQ
dP × P
Q

3MICROECONOMICS PRINCIPLES
¿ 1
dP
dQ
× P
Q
¿ 1
Slope of the demand Curve × P
Q
Corresponding to price of bagels of $2, number of packs purchased per day (Q) is obtained as
12,000.
Therefore,
Price elastiity= 1
1
3000
× 2
12000
¿ 3000 × 1
6000
¿ 1
2
¿ 0.5
Question iii
At price $2, number of packs purchased is 12, 000.
Revenue=Price× Quantity
¿ $ 2× 12,000
¿ $ 24000
At price $3, number of packs purchased reduces to is 9,000.
Revenue=Price× Quantity

4MICROECONOMICS PRINCIPLES
¿ $ 3 ×9000
¿ $ 27000
Therefore, an increase in price of bagels from $2 per pack to $3 per pack revenue increases from
$24,000 to $27,000.
Question 2
Question a
Profit maximizing level of output is obtained where marginal revenue intersects marginal
cost curve (Baumol and Blinder 2015).
Corresponding to a price of pizza per slice of $2.50, Quantity of pizza sold equals to 570.
Total revenue of the pizza seller is
Revenue=Price× Quantity
¿ $ 2.50 ×570
¿ $ 1425
The average total cost this level of price and output is $1.40
Total Cost = Average total cost × Quantity
¿ $ 1.40× 570
¿ $ 798
Profit=Total Revenue−Total Cost
¿ $ 1425−$ 798

5MICROECONOMICS PRINCIPLES
¿ $ 627
Question b
i)
0 20 40 60 80 100 120
0
20
40
60
80
100
120
Demand and Marginal Cost
P MC
Quantity
Price, Cost
Figure 2: Demand and marginal cost curve
ii)
0 20 40 60 80 100 120
-40
-20
0
20
40
60
80
Marginal Revenue
Quantity
Marginal Revenue

6MICROECONOMICS PRINCIPLES
Figure 3: Marginal revenue curve
iii)
Figure 4: Equilibrium in the market
The demand curve is given as
P=80− Q
2
Total Revenue (TR)=P ×Q
¿ (80− Q
2 )×Q
¿ 80 Q− Q2
2
Marginal Revenue ( MR ) = d ( TR )
dQ

7MICROECONOMICS PRINCIPLES
¿
d (80 Q− Q2
2 )
dQ
¿ 80−Q
The marginal cost curve is given as
Marginal cost ( MC ) =Q
Profit maximization condition is given as
MR=MC
¿ , 80−Q=Q
¿ , 2Q=80
¿ , Q= 80
2
¿ , Q=40
Equilibrium price=80− Q
2
¿ 80− 40
2
¿ 80−20
¿ 60
iv)
Profit=Total Revenue−Total Cost

8MICROECONOMICS PRINCIPLES
Total Revenue=Price× Quantity
¿ $ 60 ×40
¿ $ 2400
Marginal cost=Q
From the marginal cost, the variable cost can be derived as
Variable Cost =∫ MC . dQ
¿∫Q . dQ
¿ Q2
2
Total Cost =¿ cost +Variable cost=$ 400+ Q2
2
¿ $ 400+ 402
2
¿ $ 400+800
¿ $ 1200
Profit=$ 2400−$ 1200
¿ $ 1200
Question 3
Question 1

9MICROECONOMICS PRINCIPLES
Figure 5: Free market equilibrium and economic surplus
Weekly demand curve is given as
P=8−Q
Weekly supply is given as
P=2+Q
Equilibrium in the market is obtained at the point where
Demand=Supply
¿ , 8−Q=2+Q
¿ , 2Q=6
¿ , Q= 6
2
¿ , Q¿=3

10MICROECONOMICS PRINCIPLES
Equilibrium price in the market is given as
P¿=8−Q
¿ 8−3
¿ 5
The Maximum price that buyers willing to pay is
P1=8−0
¿ 8
Consumer Surplus= 1
2 × ( P1−P¿
) ×Q¿
¿ 1
2 × ( 8−5 ) ×3
¿ 1
2 ×3 ×3
¿ 9
2
¿ 4.5
The minimum supply price is
P2=2+0
¿ 2
Producer Surplus= 1
2 × ( P¿−P2 ) ×Q¿

11MICROECONOMICS PRINCIPLES
¿ 1
2 × ( 5−2 ) × 3
¿ 1
2 ×3 ×3
¿ 9
2
¿ 4.5
Weekly economic surplus is the sum of consumer and producer surplus.
Economic Surplus=Consumer surplus+ Producer Surplus
¿ 4.5+ 4.5
¿ 9
Question 2
Figure 6: Change in surplus after tax