Assignment
1. You are given the following data for your firm, which sells high-capacity video MP3 players.
|
Q
|
P
|
TC
|
|
0
|
$1,000
|
$1,500
|
|
2
|
$960
|
$2,568
|
|
4
|
$920
|
$3,660
|
|
6
|
$880
|
$4,824
|
|
8
|
$840
|
$6,108
|
|
10
|
$800
|
$7,560
|
|
12
|
$760
|
$9,228
|
|
14
|
$720
|
$11,160
|
|
16
|
$680
|
$13,404
|
|
18
|
$640
|
$16,008
|
|
20
|
$600
|
$19,020
|
a. Determine equations for P=f(Q), MR=f(Q), ATC=f(Q, Q2), AVC=f(Q, Q2), MC=f(Q, Q2). Recall that your marginal equations should be derivatives of your totals!
b. Determine the profit-maximizing price and quantity. (Since MC is in terms of Q2, solving with calculus and algebra can be messy. Your table should give an exact answer.)
c. How much total profit would your firm earn if you set P and Q according to part b?
d. Describe the competitiveness of the market by calculating the Lerner index.
2. "The North Carolina Board of Dental Examinerswas established under North Carolina law andcharged with administering a licensing system fordentists. A majority of the members of the boardare themselves practicing dentists. North Carolinastatutes delegate authority to the dental boardto regulate the practice of dentistry, but did notexpressly provide that teeth whitening was withinthe scope of the practice of dentistry. Followingcomplaints by dentists that non-dentists were performingteeth-whitening services for low prices,the dental board conducted an investigation. Theboard subsequently issued cease and desist lettersto dozens of teeth-whitening outfits, as well as tosome owners of shopping malls where teeth-whitenersoperated. The effect on the teeth-whiteningmarket in North Carolina was dramatic."
Many would argue that it is obvious that dentists should serve on the board of the system that licenses dentists, since they have the expertise to certify quality. Given the information in this chapter, aside from ensuring quality, why else might dentists find it in their interest to control the licensing system? Why do you think there were complaints and an investigation that teeth were being whitened "for low prices?"
3. Political scientists usually conclude that voters dislike negative campaign ads, but we can use game theory to offer an explanation for why they continue to be used. While negative ads are (nauseatingly) commonplace in electoral competition, they are far less frequent in business competition; i.e., it is rare to see company A directly attacking the quality or character of competing company B to the extent that political candidate X attacks political candidate Y. (We might see a company talk about the insufficiencies of "the leading brand," but the negativity is very tame compared to what happens during campaign season.) How might game theory also offer an explanation for this behavior?
4. The following is a payoff matrix showing profit in millions of dollars when two companies simultaneously decide on various advertising budgets ($1 million, $2 million, or $3 million):
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|
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Pizza Hut
|
|
|
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$1 mill
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$2 mill
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$3 mill
|
|
$1 mill
|
$30 / $20
|
40/ 25
|
40/ 15
|
|
Papa Johns
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$2 mill
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35/ 25
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30/ 30
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45/ 20
|
|
$3 mill
|
20/ 40
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25/ 35
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30/ 25
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a. In the first round of strategy elimination, which ad budget would the companies exclude?
b. After the first round of elimination, would either company make a second-round elimination?
c. What would be the likely outcome of this simultaneous advertising decision (i.e. what ad budget would each company end up choosing)?
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also include a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also Include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.