7. Use the information in the following table, which
summarizes the payoffs (i.e., profit) to two...

Question

7. Use the information in the following table, which
summarizes the payoffs (i.e., profit) to two firms that must decide between an
average-quality and a high quality product, to answer the questions that
follow: 
Firm 2 Average Quality High Quality 
Firm 1 Average Quality 600, XXXXXXXXXX, 1100 
High Quality 1100, XXXXXXXXXX, 900

Firm 2
 
 Firm 1

Average Quality
 
 High Quality
 
 Average Quality
 
 600
 600
 
 1100
 400
 
 High Quality
 
 400
 1100
 
 900
 900

a. What is each player's dominant strategy? Explain your
reasoning. If Firm 1 chooses High
Quality and Firm 2 chooses Average Quality then Firm 1 will have the dominant
strategy because the outcome will result in the highest payoff no matter what
action or choice Firm 2 make.

b. Referring to the table above, is this an example of a
prisoner's dilemma game? Why or why not?

c. Is there a Nash equilibrium? If so, what is it?

8. Commercial Recording, Inc., is a manufacturer and
distributor of reel-to-reel recording decks for commercial recording studios.
Revenue and cost relations are:

TR = $3,000Q - $0.5Q2

MR = ?TR/?Q = $3,000 - $1Q

TC = $100,000 + $1,500Q + $0.1Q2

MC = ?TC/?Q = $1,500 + $0.2Q

Calculate
 output, marginal cost, average cost, price, and profit at the average
 cost-minimizing activity level.

Robert · Accepted Answer

Managerial Economics Final Exam (Problems)
Managerial Economics (Problems)
 1. A.  Marginal Analysis. Fill in the missing data for price (P), total revenue (TR), marginal revenue (MR), total cost (TC), marginal cost (MC), profit (), and marginal profit (M) in the following table: 
Q 
P 
TR 
MR 
TC 
MC 
 M
0 
$230  
$0 
$ -- 
$0 
$-- 
$0 
$ --
1 
210     
$210
210
10     
10
200
200
2 
190
$380    
170
30
20   
350
150
3    
170
$510
130    
60
30
450
100
4      
150
$600
90
100     
40
500
50
5 
130      
$650
50
160
60   
490
-10
6 
110
$660      
10
230
70
430
-60
7    
90
$630
-30      
310
80
320
-110
8    
70
$560
-70 
400
90   
160
-160
B. At what output (Q) level is profit maximized? Profit is maximized at a level of 4 outputs which the profits is at its highest of $500 where MR >MC.
C. At what output (Q) level is revenue maximized? The revenue is maximized at 6 outputs which the revue is $660.
D. Discuss any differences in your answers to parts B and C. The difference is that in question (a) the profit is maximized at a level of 4 outputs where the marginal revenue is greater than the marginal cost which means the business is making money. In comparison to question (b) the revenue is maximized at a level of 6 outputs to $660 but the marginal cost is greater than the marginal revenue which means the business is loosing money on every product they produce.
2. Use the following information on a hypothetical short-run production function to answer questions a-c. 
Units of Labor/Day 5 6 7 8 9 
Units of Output/Day 120 140 155 165 168 
The price of labor is $20 per day. Ten units of capital are used each day, regardless of output level. The price of capital is $50 per unit. 
a. Calculate the marginal and average variable product of each unit of labor input. 
	K
	L
	TP
	AP
	MP
	10
	5
	120
	24
	120
	10
	6
	140
	23.33
	20
	10
	7
	155
	22.14
	15
	10
	8
	165
	20.63
	10
	10
	9
	168
	18.67
	3
b. Calculate total, average total, average variable and marginal costs.
	K
	L
	TP
	TFC
	TVC
	TC
	AFC
	ATC
	MC
	10
	5
	120
	500
	100
	600
	$4.17 
	$5.00 
	$5.00 
	10
	6
	140
	500
	120
	620
	$3.57 
	$4.43 
	$1.00 
	10
	7
	155
	500
	140
	640
	$3.23 
	$4.13 
	$1.

Firm 2	Firm 1
	Average Quality	High Quality
Average Quality	600 600	1100 400
High Quality	400 1100	900 900

7. Use the information in the following table, which summarizes the payoffs (i.e., profit) to two firms that must decide between an average-quality and a high quality product, to answer the questions...

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