davenport econ625 Problem Set 5

QUESTION

• Question
1
2 out of 2 points

Questions 1 through 5 refer to
the scenario that follows. Suppose three firms face the same total market
demand for their product. This demand is:

Suppose further that all three firms are selling their
product for $60 and each has about one-third of the total market.
What is the amount of total revenue each firm receives, in
dollars?

• Question
2
0 out of 2 points

Now assume that one of the firms,
in an attempt to gain market share at the expense of the others, drops its
price to $50. The other two quickly follow suit. What is the amount of total revenue
each firm now receives, in dollars, rounded to the nearest dollar?

• Question
3
2 out of 2 points

What impact has the price drop
had on the revenue of each firm?

• Question
4
2 out of 2 points

If the firms had all raised their
prices to $70 instead of lowering price, what would be the amount of total
revenue each firm would have received, in dollars, rounded to the nearest
dollar?

• Question
5
0 out of 2 points

Would the firms have been better
off raising the price to $70, lowering to $50, or making no change?

• Question
6
0 out of 2 points

Questions 6 through 10 refer to
the following: A monopolistically competitive firm has the following short-run
inverse demand, marginal revenue, and cost schedules for a particular product:

P = $45 – $0.2Q

MR = $45 – $0.4Q

TC = $500 + $5Q

MC = $5

What quantity would maximize profits for this firm? (Hint:
Recall that profit maximizing is where MR = MC)

• Question
7
0 out of 2 points

Refer to question 6. At what price should this firm sell its
product? Submit your answer as a whole number without the dollar sign.

• Question
8
2 out of 2 points

Refer to question 6. What would
be the amount of the firm’s total revenue at the quantity and price identified
in the prior two questions? Submit your answer as a whole number without a
dollar sign.

• Question
9
0 out of 2 points

What would be the amount of the
firm’s profit (positive number) or loss (negative number) at the quantity and
price identified in questions 6 and 7? Submit your answer as a whole number without
the dollar sign.

• Question
10
2 out of 2 points

What do you think would happen in
this market in the long run?

• Question
11
0 out of 6 points

Questions 11 through 13 refer to
the following: An amusement park, whose customer set is made up of two markets,
adult and children, has developed demand schedules as follows:

The marginal operating cost of each unit of quantity is $5.
(Hint: Because marginal cost is a constant, so is average variable cost. Ignore
fixed cost.) The owners of the amusement park want to maximize profits.
Calculate the price, quantity, and profit for each segment if the amusement
park charges a different price in each market. (Hint: calculate profit at each
price in the adult market, then in the child market, and choose profit
maximizing in each. Using a spreadsheet would make this task manageable.) Enter
amounts as whole numbers without dollar signs.
Adult market price (in dollars): [a]
Adult market quantity: [b]
Adult market profit (in dollars): [c]
Child market price (in dollars): [d]
Child market quantity: [e]
Child market profit (in dollars): [f]
Total profit (adult + child, in dollars): [g]

• Question
12
0 out of 3 points

Calculate the price, quantity,
and profit if the amusement park charges the same price in the two markets
combined. (Hint: Add adult and child quantities together, and treat this total
and the entire market quantity at each price.)
Market price (in dollars): [a]
Quantity (child + adult at this price): [b]
Profit: [c]

• Question
13
0 out of 2 points

Is profit higher, lower, or the
same when the market is split with different prices for adults and for
children?

• Question
14
1 out of 1 points

Questions 14 through 18 refer to
the following: Consider a small town that is served by two grocery stores,
White and Gray. Each store must decide whether it will remain open on Sunday or
whether it will close on that day. Monthly payoffs for each strategy pair are
as shown in the table below.

Which firm is the most profitable in this market?

• Question
15
2 out of 2 points

Refer to question 14. What is
White’s dominant strategy?

• Question
16
2 out of 2 points

Refer to Question 14. What is
Gray’s dominant strategy?

• Question
17
2 out of 2 points

Refer to question 14. What will
be the likely equilibrium outcome, assuming no additional information is
available to either firm?

• Question
18
0 out of 2 points

Is the position identified in
question 17 the best possible outcome for both firms?

ANSWER:

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