Econ 001, Spring '12, Levinson

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1 Page 1 of 7 Print this page. Econ 001, Spring '12, Levinson Problem Set 7 Monopolies, game theory. Instructor Description: Tests understanding of monopoly, especially profit maximization. Includes graphical and algebraic questions and a problem on regulated natural monopoly. Assign as a graded problem set. Coaster Park Thrills (CPT) is a small roller coaster theme park that sells admission tickets to customers who can then ride all roller coasters for free. Let Q be the number of admission tickets sold each day. Here are the equations for CPT's total cost and marginal cost: TC = 1, Q 2 MC = 0.02Q Daily demand for admission tickets can be written as P = Q so that MR = Q, where P is the price of a ticket and MR is the marginal revenue. Question How many admission tickets will CPT sell each day to maximize profits? Question At what price will CPT sell admission tickets to maximize its profit? Question How much profit does CPT earn each day? This graph illustrates the demand for computers in a small country. To develop a domestic computer industry, the government prohibits imports of computers and gives a single local firm the right to produce and sell computers. The demand curve shows the local demand for computers. The cost curves show the marginal cost (MC) and average total cost (ATC) of the single producer. The graph also shows the marginal revenue curve faced by this firm.

2 Page 2 of 7 Question How many computers will the monopolist sell to maximize profits? A. 0 B. 400 C. 600 D. 690 E. 1,250 Question At what price will the monopolist sell each computer? A. 1,000 B. 1,300 C. 2,000 D. 2,500 Question How much profit does the monopolist earn?

3 Page 3 of 7 A natural spring flows exclusively on Ben's property. Residents of nearby Dry Gulch believe that minerals in the stream give the water special medicinal value. The graph below shows the demand for Ben's Miracle Water, the corresponding marginal revenue, and the marginal and average cost of selling the water.

4 Page 4 of 7 Question Use the calculator to answer the question below. Tool tip: To change the value in the Quantity box on the right side of the calculator, click in the box and then type. The graph and any related values will change accordingly. You can also use your mouse to drag the quantity line (the drop line with the red arrows) left and right. The values in the boxes will change accordingly. Note that once you leave the page or click Submit, this calculator will refresh to its initial values. If Ben sells 100 gallons per week, how much is his average profit per gallon of water? Please enter 2 digits after the decimal point.

5 Page 5 of 7 Question If Ben is to maximize profit, how many gallons should he sell per week? Once you are satisfied with your positioning of the graph, click the Submit button. The attached link depicts four "games." For each, please identify the Nash equilibrium or equilibria. (There may be none, or multiple.) Question For game (i), which of the following are Nash Equilibria? Question 4.2

6 Page 6 of For game (ii), which of the following are Nash Equilibria? Question For game (iii), which of the following are Nash Equilibria? Question For game (iv), which of the following are Nash Equilibria? Due , 09:00 AM Graded Copyright , Aplia All rights reserved.

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