ECO 550 WEEK 9 CHAPTER 16 PROBLEMS 4, 6(A, C), 9

Chapter 16: Problems 4, 6(a, c), 9

4. What are the incentives to innovate for a monopoly firm’s as compared with a firm in a competitive market if patent protection is not available.

6. The industry demand function for bulk plastics is represented by the following equation:

Where Q represents millions of pounds of plastics

The total cost function for the industry, exclusive of a required return on invested capital, is

+ 500Q +10Q2

Where Q represents millions of pounds of plastic

(a) If this industry acts like a monopolist in the determination of price and output, compute the profit –maximizing level of price and output

(b) What are total profits at this price and output level?

© Assume that this industry is composed of many (500) small firms, such that the demand function facing any individual firm is

P=$620

Compute the profit-maximizing level of price and output under these conditions (the industry’s total cost function remain unchanged)

9. Branding Iron Products, a specialty steel fabricator, operates a plant in the town of West Star, Texas. The town has grown rapidly because of recent discoveries of oil and gas in the area. Many of the new residents have expressed concern at the amount of pollution (primary particulate matter in the air and waste water in the town’s river) emitted by Brandon Iron. Three proposals have been made to remedy the problem:

(a) Impose a tax on the amount of particulate matter and the amount of waste water emitted by the firm.

(b) Prohibit pollution by the firm

( c) Offer tax incentives to the firm to clean up its production processes.

Evaluate each of these alternatives from the perspectives of economic efficiency, equity, and the likely long-term impact on the firm.

ECO 550 WEEK 8 DQS.

"Contracting" Please respond to the following:

From the e-Activity, propose a methodology for assessing the risk in business contracts. Assess the economic impact this methodology may have for the organization. Analyze a situation in which both parties entering into a contract could benefit, economically or otherwise, from slightly ambiguous language contained in the contract. Provide specific examples to support your response.

"Organization Form" Please respond to the following:

Analyze the potential downfalls of any team effort and make at least one recommendation for minimizing risk. Provide specific examples to support your response. Evaluate the organization form that would be most efficient in minimizing the principal-agent problem. Provide a rationale with your response

ECO 550 WEEK 8 CHAPTER 15 PROBLEMS 2, 5, AND 6

Chapter 15: Problems 2, 5, and 6

2. If contract promises were not excused because of acts of war, would the clearing and settlements clients of Bank of New York change their behavior? If so,how?What reliance behavior would be considered efficient? What reliance behavior would be considered excessive?

5. Would warehouse operators insist on owning their own trucking companies?

Why or why not? What coordination and control problems and contractual hazards would these companies encounter?6. What organizational form would warehouse operators and truck hauling companies adopt?

ECO 550 WEEK 7 DQS.

"Game Theory" Please respond to the following: • Demand for airline tickets fluctuates throughout the year, which affects the price of an airline ticket. Suggest the type of game that may be most appropriate for a specific airline to play to address the differences in demand and elasticity and the resulting impact on profitability. Provide support for your reply. • From the first e-Activity, propose a short-term and long-term pricing strategy for the product or service you researched including how the strategies would be implemented. Assess how your proposal ultimately maximizes profits

"Pricing Techniques" Please respond to the following:

From the second e-Activity, propose the new target market segment for the product and its accompanying pricing strategy (for example, bundling and couponing). Provide a rational for why you feel the new target market and pricing strategy would be successful and the likely impact to the profitability of the firm. The pharmaceutical industry often has the luxury of implementing pricing strategies that appear high to consumers. Take a position on the fairness of the industry’s approach to pricing pharmaceutical products including offering an alternative strategy that may be more palatable to consumers. Provide a rationale with your position

ECO 550 WEEK 7 CHAPTER 13 AND CHAPTER 14 PROBLEMS

Chapter 13: Problems 2, 13, and 15 

2. Consider the following payoff matrix:
a. Does Player A have a dominant strategy? Explain why or why not.
b. Does Player B have a dominant strategy? Explain why or why not.
13. Analyze the following sequential game and advise Kodak about whether they should introduce the new product, Picture CD.

15.A math graduate student explains to her friend how to approach a group of smartattractive guys who have brought along famous actor Russell Crowe. What shouldher friend do? Ignore Russell Crowe or fixate on Russell Crowe? Explain the equilibrium reasoning underlying your answer. (Note: Best payoff—date with R.C., Better—date with other guys, Worse—no date tonight, Worst—nodate ever with any of these guys.)

Chapter 14: Problems 3(b, c, d), 5(a, b, c), and 8(a, b, c)


3. American Export-Import Shipping Company operates a general cargo carrier service between New York and several Western European ports. It hauls two majorcategories of freight: manufactured items and semi manufactured raw materials.

b. . What are the profit-maximizing levels of price and output for the twofreight categories?

c. At these levels of output, calculate the marginal revenue in each market.

5. Phillips Industries manufactures a certain product that can be sold directly to retail outlets or to the Superior Company for further processing and eventual sale asa completely different product. The demand function for each of these markets is

Retail Outlets: P1 = 60 − 2 Q1

Superior Company: P2 = 40 − Q2

whereP1 and P2 are the prices charged and Q1 and Q2 are the quantities sold inthe respective markets.

Phillips’ total cost function for the manufacture of thisproduct + 8(Q1 + Q2)5.

a. Determine Phillips’ total profit function.

b. What are the profit-maximizing price and output levels for the product inthe two markets?

c. At these levels of output, calculate the marginal revenue in each market.

8. The Pear Computer Company just developed a totally revolutionary new personal computer. It estimates that it will take competitors at least two years to produce equivalent products. The demand function for the computer is estimated to be ,500 − 0.0005Q

The marginal (and average variable) cost of producing the computer is $900.

a. Compute the profit-maximizing price and output levels assuming Pear acts as a monopolist for its product.

c. Calculate the contribution to profit and overhead for each of the 10 time periods and prices.

ECO 550 WEEK 6 DQS.

"Monopolies" Please respond to the following:

From the first e-Activity, imagine this company acting as a monopoly was to have a new competitor arrive in the marketplace. Assess how the monopoly would likely change its pricing strategy to compensate for the new competition.From the first e-Activity, speculate how the monopolist could be more efficient in the long-run considering new competition has entered the marketplace

"Oligopoly" Please respond to the following:

From the second e-Activity, assess the marketing and pricing strategies, for example rebates, to determine the goal(s) of the marketing and pricing strategies for one of the companies you researched. Make one recommendation for changes that the company should make to better maximize profits. The Internet has made shopping for airline tickets efficient for the consumer. As a result, the industry overall is price sensitive. Suggest how the airlines can maximize profits while avoiding price wars.

ECO 550 WEEK 6 CHAPTER 11 AND CHAPTER 12 PROBLEMS

Chapter 11

2. Ajax Cleaning Products is a medium-sized firm operating in an industry dominated by one large firm Tile King. Ajax produces a multi-headed tunnel wall scrubber that is similar to a model produced by Tile King. Ajax decides to charge the same price as Tile King to avoid the possibility of a price war. The price charged by Tile King is $20,000.

Ajax has the following short-run cost curve:

,000 - 5,000Q + 100Q2.

A. Computer the marginal cost curve for Ajax.

B. Given Ajax’s pricing strategy, what is the marginal revenue function for Ajax?

4. Unique Creations holds a monopoly position in the production and sale of manometers. The cost function facing Unique is estimated to be

TC = $100,000 + 20Q

A. What is the marginal cost for Unique?

C. What is the marginal revenue at the price computed in Part (b)?

6. Wyandotte Chemical Company sells various chemicals to the automobile industry. Wyandotte currently sells 30,000 gallons of polyol per year at an average price of $15 per gallon. Fixed costs of manufacturing polyol are $90,000 per year and total variable costs equal $180,000. The operations research department has estimated that a 15 percent increase in output would not affect fixed costs but would reduce average variable costs by 60 cents per gallon. The marketing department has estimated the arc elasticity of demand for polyol to be –2.0.

A. How much would Wyandotte have to reduce the price of polyol to achieve a 15 percent increase in the quantity sold?

B. Evaluate the impact of such price cut on (i) total revenue, (ii) total costs, and (iii) total profits.

Chapter 12

1. Assume that two companies (C and D) are duopolists that produce identical products. Demand for the products is given by the following linear demand function:

– Qc- Qd

Where Qc and Qd are the quantities sold by the respective firms and P is the selling price. Total cost functions for the two companies are

,000 + 100Qc

,000 + 125Qd.

Assume that the firms act independently as in the Cournot model (i.e., each firm assumes that the other firm Â’s output will not change).

A. Determine the long-run equilibrium output and selling price for each firm.

B. Determine the total profits for each firm at the equilibrium output found in Part (a). This is answer for part (a).

2. Assume that two companies (A and B) are duopolists who produce identical products. Demand for the products is given by the following linear demand function:

– Qa - Qb

Where Qa and Qb are the quantities sold by the respective firms and P is the selling price. Total cost functions for the two companies are:

,500 + 55Qa + Q^2a

,200 + 20Qb + 2Q^2b .

Assume that the firms act independently as in the Cournot model (i.e., each firm assumes that the other firm Â’s output will not change).

B. Determine Firm A, Firm B, and total industry profits at equilibrium solution found in Part (a).

5. Alchem (L) is the price leader in the polyglue market. All 10 other manufacturers (follower [F] firms) sell polyglue at the same price as Alchem. Alchem allows the other firms to sell as much as they wish at the established price and supplies the remainder of the demand itself. Total demand for polyglue is given by the following function ( +QF):

,000 – 4 QT

Alchem marginal cost function for the manufacturing and selling polyglue is

,000 + 5QL

The aggregate marginal cost function for the other manufacturers of polyglue is

?,000 + 4QF

B. What is the total market demand for polyglue at the price established by Alchem in Part (a)? How much of total demand do the follower firms supply?