l Verizon 10:19 PM ECON 703 Assignment 6 End-of Module Assessment due: Dec. 6\",
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l Verizon 10:19 PM ECON 703 Assignment 6 End-of Module Assessment due: Dec. 6", 11:59pm SECTION OVERVIEW: Chapter 12 utilizes many of the tools developed in the previous chapter but applies them to markets where a firm or firms exercise some degree of market power. Market power allows firms to free themselves from the competitive price-taking situation so that they face downward-sloping demand curves. Chapter 13 provides an introduction to the strategic decision-making processes used by oligopoly firms, where pricing and output decisions between firms is interdependent. It provides a rough sketch of the major concepts in game theory (prisoners' dilemma, Nash EQ, game trees, etc.) LEARNING GOALS: Upon completing this section, we will understand how perfectly competitive firms differ from monopolies and from monopolistically competitive firms. We will be able to determine profit-maximization in both situations, and how entry and exit in the long run affects profitability. We will also become familiar with various tools of measuring market power. We will have a few tools with which to analyze strategic decisions, and how decisions made by one firm affect decisions made by others (competitors or otherwise) 1. You are given the following data for your firm, which sells high-capacity video MP3 players Q P TC a. Determine equations for P-f(Q) MR-f(Q), ATC f(Q. Q). 100,00 AVC f(Q. Q). MC fQ.Q). Recall that your marginal $125,50 b. Determine the profit-maximizing price and quantity. (Since $144,00 be messy. Your table should give an exact answer.) $158,50 and Q according to part b? 172,00 the Lemer index. $187,50 208,00 0 $78 1,000 76 2.000 %74 equations should be derivatives of your totals! 0 MC is in terms of Q, solving with calculus and algebra can 0 c. How much total profit would your firm eam if you set P 0 d. Describe the competitiveness of the market by calculating ,000$72 4,00070 5,000 $68 6,000 $66 7,000 $64 8,000 $62 9,000 $60 10,000 $58 Do Applied Problem #13 on page 504 about Coke's attempt at gaining market share. $276,00 400,00 2. 3. Do Applied Problem #4 on page 566 about laws restricting Sunday sales. Note that the trade associations attempt to represent the interests of all businesses in the industry. 4. The following is a payoff matrix showing profit in millions of dollars when two companies simultaneously decide on various advertising budgets (S1 million, $2 million, or $3 million): PizzaExplanation / Answer
d) Lerner index = (P-MC)/P.
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Q P TC TR MR MC Profit 0 78 100000 0 1000 76 125500 76000 76000 25500 -49500 2000 74 144000 148000 72000 18500 4000 3000 72 158500 216000 68000 14500 57500 4000 70 172000 280000 64000 13500 108000 5000 68 187500 340000 60000 15500 152500 6000 66 208000 396000 56000 20500 188000 7000 64 236500 448000 52000 28500 211500 8000 62 276000 496000 48000 39500 220000 9000 60 329500 540000 44000 53500 210500 10000 58 400000 580000 40000 70500 180000 1. a) We can determine the demand function using points (P,Q) = (78,0) and (76, 1000) P =a+ bQ, put thesepoints otain value for a and b. a = 78 76 = a + 1000b, put a= 78 and solve for b. b = -0.002 therefore demand function is P = 78- 0.002Q. Using this wewill calculate TR = (78 -0.002Q)Q MR = dTR/dQ. MR = 78-0.004Q Similarly find TC = 10000 +3Q -0.0005Q^2. ATC = TC/Q ATC = 10000/Q + 3-0.0005Q. AVC = 3 - 0.0005Q MC = dTC/dQ = 3 - 0.001Q b) Profit maximizing is where MR = MC . So Q = 8000 and Price = $62 c) Profit = $220000d) Lerner index = (P-MC)/P.
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