Instructions: Answer any four questions. Write legibly. Begin each numbered question on a fresh page. Number the questions you are answering on the cover page. To get full credit you must show all steps in your work. Unsupported answers will receive no credit! You must work independently. Due: Thursday 5/3/2012 at 11:59pm 1. The demand and cost curves for a monopoly firm are as follows: TC= Q x P TC = QP = 2000 +70Q Q=750 – 5P At what output and price will the firm maximize total revenue? Price- $75.36, Quantity = 750 – XXXXXXXXXX) = 373 At what output and price will the firm maximize total profit? Price- $70, Quantity XXXXXXXXXX) = 400 Compare the maximum profit obtainable with the profit that the firm would have if it chose a revenue-maximizing strategy. A $5 decrease in price correlates to a 27 decrease in quantity (400 – 373 = 27), therefore it would be more profitable to go with maximizing total profit of the firm. Essentially, our costs will still need to be paid, and if we utilize our time to maximize our money, it would do more than simply maximizing our revenue. 2. (a) Consider a perfectly competitive firm with the following total cost function in the short run: Given the market price of its product is P=$300 per unit, determine its profit-maximizing output and profit for the short run. (b) Now suppose its long-run total cost is: Indicate the firm’s long-run price, quantity sold, and profit, assuming the industry is in long-run equilibrium. 3. In the following one-shot game, if you advertise and your rival does not, you will make $20 million in profits and your rival will make $6 million. If your rival advertises and you do not, you will make $2 million and your rival will make $6 million. If you advertise and your rival advertises, you will each earn $10 million. If neither of you advertise, your rival will make $8 million and you will make $4 million. (a) Write the above game in normal form. (b) Do you have a dominant...
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