question
What level of output maximizes profits in a perfectly competitive market?
answer
When MC = MR
question
In a perfectly competitive market, what price should a firm charge?
answer
Whatever the price is when MC = MR
question
In the short run, when should a firm shut down?
answer
When P < AVC
question
A firm sells its product in a perfectly competitive market where other firms charge a price of $110 per unit. The firm estimates its total costs as C(Q) = 70 + 14Q + 2Q2. Thus, the marginal costs are MC(Q) = 14 + 4Q. How much output should the firm produce in the short run?
answer
24
question
A firm sells its product in a perfectly competitive market where other firms charge a price of $110 per unit. The firm estimates its total costs as C(Q) = 70 + 14Q + 2Q2. Thus, the marginal costs are MC(Q) = 14 + 4Q. What price should the firm charge in the short run?
answer
$110
question
A firm sells its product in a perfectly competitive market where other firms charge a price of $110 per unit. The firm estimates its total costs as C(Q) = 70 + 14Q + 2Q2. Thus, the marginal costs are MC(Q) = 14 + 4Q. What are the firm's short run profits?
answer
$1,082
question
You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm's cost function is C = 40 + 5Q2. Thus, the marginal costs are MC(Q) = 10Q. The profit-maximizing output for your firm is
answer
When MC = 10Q the maximizing output is 5
question
You are the manager of a firm that sells its product in a competitive market at a price of $40. Your firm's cost function is C = 60 + 4Q2. Thus, the marginal costs are MC(Q) = 8Q. The profit-maximizing output for your firm is
answer
When MC = 8Q the maximizing output is 5
question
You are the manager of a firm that sells its product in a competitive market at a price of $60. Your firm's cost function is C = 50 + 3Q2. Thus, the marginal costs are MC(Q) = 6Q. The profit-maximizing output for your firm is
answer
When MC = 6Q the maximizing output is 10
question
You are the manager of a firm that sells its product in a competitive market at a price of $14. Your firm's cost function is C = 10 + 4Q + 0.5Q2. Thus, the marginal costs are MC(Q) = 4 + Q. The profit-maximizing output for your firm is
answer
When MC = 4 + Q the maximizing output is 10
question
When is the monopolist's profit-maximizing level of output?
answer
For monopolist it is when MC = MR
question
When is the monopolist's profit-maximizing price?
answer
For monopolist, the output where MC = MR, go up on that line to where it intersects with the demand curve line and the price that correlates with is the profit-maximizing price.
question
Total Revenue = ____ x _____
answer
Price x Quantity
question
How do you find Total Cost at the profit-maximizing output if you are a monopoly?
answer
You use the price that correlates where the ATC line intersects the MR line at the profit-maximizing output.
question
How do you calculate profit using profit-maximizing output and price?
answer
Total Revenue - Total Cost.
question
The inverse demand for Harley Davidson motorcycles is given by:
𝑃 = 40,000−10𝑄
where P is the price in dollars, and Q measures the number of units sold each month. Harley Davidson is currently producing motorcycles at a constant marginal and average cost of $16,000. Assume Harley Davidson is a monopoly.
What is the profit-maximizing quantity?
𝑃 = 40,000−10𝑄
where P is the price in dollars, and Q measures the number of units sold each month. Harley Davidson is currently producing motorcycles at a constant marginal and average cost of $16,000. Assume Harley Davidson is a monopoly.
What is the profit-maximizing quantity?
answer
1200
question
The inverse demand for Harley Davidson motorcycles is given by:
𝑃 = 40,000−10𝑄
where P is the price in dollars, and Q measures the number of units sold each month. Harley Davidson is currently producing motorcycles at a constant marginal and average cost of $16,000. Assume Harley Davidson is a monopoly.
What is the profit-maximizing price?
𝑃 = 40,000−10𝑄
where P is the price in dollars, and Q measures the number of units sold each month. Harley Davidson is currently producing motorcycles at a constant marginal and average cost of $16,000. Assume Harley Davidson is a monopoly.
What is the profit-maximizing price?
answer
$28,000
question
The inverse demand for Harley Davidson motorcycles is given by:
𝑃 = 40,000−10𝑄
where P is the price in dollars, and Q measures the number of units sold each month. Harley Davidson is currently producing motorcycles at a constant marginal and average cost of $16,000. Assume Harley Davidson is a monopoly.
Heavy tariffs on imported steel drive up Harley's marginal and average cost by $2,000. What is the new profit-maximizing quantity?
𝑃 = 40,000−10𝑄
where P is the price in dollars, and Q measures the number of units sold each month. Harley Davidson is currently producing motorcycles at a constant marginal and average cost of $16,000. Assume Harley Davidson is a monopoly.
Heavy tariffs on imported steel drive up Harley's marginal and average cost by $2,000. What is the new profit-maximizing quantity?
answer
1100
question
The inverse demand for Harley Davidson motorcycles is given by:
𝑃 = 40,000−10𝑄
where P is the price in dollars, and Q measures the number of units sold each month. Harley Davidson is currently producing motorcycles at a constant marginal and average cost of $16,000. Assume Harley Davidson is a monopoly.
Heavy tariffs on imported steel drive up Harley's marginal and average cost by $2,000. What is the new profit-maximizing price?
𝑃 = 40,000−10𝑄
where P is the price in dollars, and Q measures the number of units sold each month. Harley Davidson is currently producing motorcycles at a constant marginal and average cost of $16,000. Assume Harley Davidson is a monopoly.
Heavy tariffs on imported steel drive up Harley's marginal and average cost by $2,000. What is the new profit-maximizing price?
answer
$29,000
question
Five networks are vying to receive the exclusive pay-per-view broadcast rights (i.e. monopoly) to the World Series of Yahtzee. Each estimates that the inverse demand for watching this nail-biter of an event is given by:
𝑃 = 100−0.01𝑄
Each can provide the broadcast at a constant marginal cost of $1 per viewer.
What is the profit-maximizing level of output?
𝑃 = 100−0.01𝑄
Each can provide the broadcast at a constant marginal cost of $1 per viewer.
What is the profit-maximizing level of output?
answer
4,950
question
Five networks are vying to receive the exclusive pay-per-view broadcast rights (i.e. monopoly) to the World Series of Yahtzee. Each estimates that the inverse demand for watching this nail-biter of an event is given by:
𝑃 = 100−0.01𝑄
Each can provide the broadcast at a constant marginal cost of $1 per viewer.
What is the profit-maximizing price?
𝑃 = 100−0.01𝑄
Each can provide the broadcast at a constant marginal cost of $1 per viewer.
What is the profit-maximizing price?
answer
$50.5
question
What is the learner index?
answer
It measures the % mark-up above the firms marginal cost.
question
What does the learner index equal?
answer
LI = P-MC/P = 1/IEdI
question
When thinking of optimal decisions, one must think about decisions their _______ make?
answer
Rivals
question
Game Theory is all about?
answer
Strategy
question
What is Game Theory?
answer
A framework that allows us to model and analyze strategic interactions with other firms.
question
What does Game Theory help us do?
answer
Make predictions about decisions firms make and which outcomes are likely/reasonable.
&
Shows us what constitutes on equilibrium in strategic interactions.
&
Shows us what constitutes on equilibrium in strategic interactions.
question
What are the 4 basic elements to every game?
answer
1.) Players - Decision Makers (Firms)
2.) Strategies - Possible Player Choices
3.) Payoffs - Returns to players at the conclusion of the
game
4.) Information - Specify what players know when they make their move
2.) Strategies - Possible Player Choices
3.) Payoffs - Returns to players at the conclusion of the
game
4.) Information - Specify what players know when they make their move
question
What is a Simultaneous or Static game?
answer
Decisions are made at the same time; decisions are made without knowing what your rivals are doing.
question
What is a Dynamic or Sequential game?
answer
Decisions are made in sequence; able to observe the decisions of others and respond.
question
What is Nash Equilibrium?
answer
In game theory, the result of all players' playing their best strategy given what their competitors are doing.
question
What is Dominant Strategy in Game Theory?
answer
A strategy that is best for a player in a game and yields the highest payoff regardless of the strategies chosen by the other players
question
What is a zero-sum game?
answer
When the two players payoffs in each box add to zero. Think the Matching Pennies game.
question
What happens to both players In a Zero-Sum Game?
answer
Both of their payoffs will equal zero.
question
How do you prevent resale?
answer
1. Require Identification with consumption of the good. Ex: Students showing ID to watch the game.
2. Link Individual to Good
Ex: Airline ticket, whoever buys it uses it
3. Limit the discount to one person
2. Link Individual to Good
Ex: Airline ticket, whoever buys it uses it
3. Limit the discount to one person
question
What is 1st degree price discrimination?
answer
Firms can perfectly observe the demand of its consumers
Firms charge each customer their max willingness to pay (WTP)
Ex: Buying a car, College Tuition, etc...
Firms charge each customer their max willingness to pay (WTP)
Ex: Buying a car, College Tuition, etc...
question
1st degree price discrimination results in?
answer
The maximum possible profit for a frim.
question
What is 2nd degree price discrimination?
answer
Firms charge different amounts based on how much is bought.
Ex: Utility pricing, bulk discounting, season tickets.
Ex: Utility pricing, bulk discounting, season tickets.
question
What does the profit from 2nd degree price discrimination look like?
answer
Profit from 2nd degree PD < Profit from 1st degree PD
Profit from 2nd degree PD > Profit from no PD
Profit from 2nd degree PD > Profit from no PD
question
Consider a person has a demand for up to 2 Red Bulls in a given week
WTP for 1st = $3
WTP for 2nd = $2
For vendor, suppose MC = $1.50
If the firm just set one uniform price, what would it be?
WTP for 1st = $3
WTP for 2nd = $2
For vendor, suppose MC = $1.50
If the firm just set one uniform price, what would it be?
answer
If P = $3, producer surplus (PS) would
PS = (3 x 1) - (1:50 x 1)
PS = $1.50
If PS = 2
PS = (2 x 2) - (1.50 x 2)
PS = $1
They would charge $3 and sell 1 drink.
PS = (3 x 1) - (1:50 x 1)
PS = $1.50
If PS = 2
PS = (2 x 2) - (1.50 x 2)
PS = $1
They would charge $3 and sell 1 drink.
question
When solving with the inverse demand what must you do to the quantity in the price function?
answer
Double it
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