09 Jul How to calculate profit-maximizing price and determine profit or a loss at a certain price?
Question Description
1. Answer the following questions based on the accompanying graph. a. What is the profit-maximizi 2 2. You are doing a project with a friend for an economics class. Assume that you and your friend are both interested in maximizing your grade, but you are both very busy and get more happiness if you can get a good grade with less work. The graph below gives the strategies and payoffs for your (and your friend’s) actions. a. What is your dominant strategy? Explain b. What is your partner’s dominant strategy? Explain c. What is the Nash equilibrium in this situation? Explain d. If you and your partner are required to work together on a number of projects throughout the semester, how might this requirement change the outcome you predicted in parts a, b, and c? 3. Consider the game in question 2, but assume that the game is sequential. Your partner will be the first mover in this sequential game. Use backward induction to find the Nash equilibrium for this game. 4. Google and Yahoo! are two large search engine companies. Combined, these companies control a large market share in the search engine industry. Both companies currently advertise their search engines on television, and each company earns a profit of $550 million. If both companies were to stop advertising on television, each would earn a profit of $600 million. If only one company were to stop advertising on television and the other company continued to do so, the company that stopped advertising would earn a profit of $200 million and the company that continued to advertise would earn a profit of $800 million. 3 Assume this is a simultaneous-move game where Google and Yahoo! choose to advertise or choose not to advertise, and Google and Yahoo! cannot collude. Explain the process of finding Google’s dominant strategy. What about Yahoo!’s dominant strategy? What is the dominant strategy equilibrium in this game? 5. Suppose that the marginal cost of mining gold is constant at $300 per ounce, and the demand schedule is as follows: Price (per ounce) Quantity (ounce) $1,000 1,000 900 2,000 800 3,000 700 4.000 600 5,000 500 6,000 400 7,000 300 8,000 a. If the numbers of suppliers is large, what would be the price and quantity? b. If there is only one supplier, what would be the price and quantity? c. If there are only two suppliers and they form a cartel, what would be the price and quantity? d. Suppose that one of the two cartel members in part c decides to increase production by 1,000 ounces while the other member keeps its production constant. What will happen to the revenues of both firm? What does that imply about the stability of this cartel? 6. Which of the following markets are likely to be oligopolistic? a. Passenger airlines b. Cereal c. Fast food d. Wheat e. The college bookstore on campus 7. Facebook is by far the largest social-networking website in the world. Explain how network externalities help Facebook maintain its position as market leader.
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