Post on 16-Dec-2015
Confidential and Proprietary –Not for Distribution
Agenda
• Exam Developers • Scores• Areas of Strength• Areas of Weakness• Discussion
Microeconomics
Committee ChairPamela M. Schmitt, United States Naval AcademyMichael A. Brody, Menlo School
Committee MembersJoyce Jacobsen, Wesleyan UniversityMargaret Ray, Mary Washington CollegeDee Mecham, The Bishop’s SchoolSandra K. Wright, Adlai E. Stevenson High School
College Board AdvisorMary Kohelis, Brooke High School
Chief ReaderDavid Anderson, Centre College
ETS Assessment SpecialistsFekru DebebeHwanwei ZhaoMarwa Hassan
Mean / Standard Deviation / Max
1. Monopoly 5.57 2.7210
2. Game Theory / Oligopoly 2.551.62 5
3. Market Failure 2.82 1.60 6
Scores201214.8%28.3% 21.8%16.3%18.8%
201114.6%25.9% 21.6%16.0%21.9%
2013516.7%428.4% 320.6%215.4%118.9%
Students Did Great On• Monopoly Graph
– Profit Max Quantity where MR = MC (88%)– Price on Demand Curve above Q* (86%)
Students Did Great On• Monopoly Graph
– Profit Max Quantity where MR = MC (88%)– Price on Demand Curve above Q* (86%)
• Market Equilibrium– Price and quantity found at intersection of
Supply and Demand (88%)
Students Did Great On• Monopoly Graph
– Profit Max Quantity where MR = MC (88%)– Price on Demand Curve above Q* (86%)
• Market Equilibrium– Price and quantity found at intersection of
Supply and Demand (88%)
• Game Theory– Best strategy given other player’s move (73%)
Overview of Trouble Spots
8. Quantity with Price Discrimination
7. QE < QS for Positive Externality
6. Relationship between MSB and D
5. Nash Equilibrium Outcomes
4. Determination of Inelastic Demand
3. Why No Dominant Strategy?
2. Show Total Revenue with Price Discrimination
1. Show Deadweight Loss on graph
8. Micro 1 (b)(i)
Question: Now assume that the monopolist can perfectly price discriminate.
Using the labeling on the graph, identify the quantity produced.
7. Micro 3 (c)(i)
Question: Now instead assume that all of the neighbors enjoy watching fireworks.
In this case, is the market equilibrium quantity of fireworks greater than, less than, or equal to the socially optimal quantity? Explain.
7. Micro 3 (c)(i)
Answer: The market equilibrium quantity is less than the socially optimal quantity because the fireworks generate a positive externality.
OR because MSB > MPB.
OR because MSB > MSC at the market quantity.
38.4% answered correctly
6. Micro 3 (b)(ii)
Question: Assume that noise from the fireworks disturbs all of the neighbors. On your graph from part (a), show each of the following.
(b) (ii) The marginal social benefit curve, labeled MSB.
(35.6% answered correctly)
6. Micro 3 (b)(ii) Answer:
Supply
PE
Quantity
Price ($)
MSC
Demand = MSB
QE
5. Micro 2 (c)(i & ii)
Question: In the Nash Equilibrium, determine each of the following.
(i) PieCrust’s daily profit
(ii) LaPizza’s daily profit
La Pizza
Advertise Not Advertise
PieCrust Advertise $250, $200 $450, $300
Not Advertise $180, $500 $390, $400
5. Micro 2 (c)(i & ii)
Question: In the Nash Equilibrium, determine each of the following.
(i) PieCrust’s daily profit
(ii) LaPizza’s daily profit
La Pizza
Advertise Not Advertise
PieCrust Advertise $250, $200 $450, $300
Not Advertise $180, $500 $390, $400
5. Micro 2 (c)(i & ii)
Question: In the Nash Equilibrium, determine each of the following.
(i) PieCrust’s daily profit
(ii) LaPizza’s daily profit
La Pizza
Advertise Not Advertise
PieCrust Advertise $250, $200 $450, $300
Not Advertise $180, $500 $390, $400
5. Micro 2 (c)(i & ii)
Question: In the Nash Equilibrium, determine each of the following.
(i) PieCrust’s daily profit
(ii) LaPizza’s daily profit
La Pizza
Advertise Not Advertise
PieCrust Advertise $250, $200 $450, $300
Not Advertise $180, $500 $390, $400
5. Micro 2 (c)(i & ii)
Question: In the Nash Equilibrium, determine each of the following.
(i) PieCrust’s daily profit
(ii) LaPizza’s daily profit
La Pizza
Advertise Not Advertise
PieCrust Advertise $250, $200 $450, $300
Not Advertise $180, $500 $390, $400
5. Micro 2 (c)(i & ii)
Answer: In the Nash Equilibrium:
(i) PieCrust’s daily profit is $450
(ii) LaPizza’s daily profit is $300
La Pizza
Advertise Not Advertise
PieCrust Advertise $250, $200 $450, $300
Not Advertise $180, $500 $390, $400
32.4% Answered Correctly
4. Micro 1 (e)
Question: Is point f in the elastic inelastic, or unit elastic portion of the demand curve? Explain.
Price
Quantity
Demand
0
Marginal Revenue
Inelastic range
Elastic Range
Price
Quantity0
Total Revenue
4. Micro 1 (e)
Answer: Point f is in the inelastic portion of the demand curve because MR is negative
ORbecause TR is falling as Q increases.
32.0% Answered Correctly
3. Micro 2 (b)(ii)
Question: What is the dominant strategy, if any, for LaPizza? Explain using the dollar values in the payoff matrix.
La Pizza
Advertise Not Advertise
PieCrust Advertise $250, $200 $450, $300
Not Advertise $180, $500 $390, $400
3. Micro 2 (b)(ii)
La Pizza
Advertise Not Advertise
PieCrust Advertise $250, $200 $450, $300
Not Advertise $180, $500 $390, $400
3. Micro 2 (b)(ii)
La Pizza
Advertise Not Advertise
PieCrust Advertise $250, $200 $450, $300
Not Advertise $180, $500 $390, $400
3. Micro 2 (b)(ii)
La Pizza
Advertise Not Advertise
PieCrust Advertise $250, $200 $450, $300
Not Advertise $180, $500 $390, $400
3. Micro 2 (b)(ii)
La Pizza
Advertise Not Advertise
PieCrust Advertise $250, $200 $450, $300
Not Advertise $180, $500 $390, $400
3. Micro 2 (b)(ii)
LaPizza does not have a dominant strategy because his best choice depends on the strategy chosen by PieCrust.
If PieCrust advertises, LaPizza does better by not advertising because the $300 he earns by advertising is larger than the $200 he earns by not advertising.
If PieCrust does not advertise, LaPizza does better by advertising: $500 > $400.
La Pizza
Advertise Not Advertise
PieCrust Advertise $250, $200 $450, $300
Not Advertise $180, $500 $390, $400
2. Micro 1 (b)(ii)
Question: Now assume that the monopolist can perfectly price discriminate.
Using the labeling on the graph, identify the total revenue of the monopolist.
1. Micro 3 (b)(iii)
Question: Assume that noise from the fireworks disturbs all of the neighbors. On your graph from part (a), show each of the following.
(iii) The deadweight loss, if any, shaded completely.
16.2% Answered Correctly
(credit was given for consistency with an incorrect answer in an earlier part of the question)
Supply
PE
Quantity
Price ($)
MSC
Demand = MSB
QE