Question 1. Suppose you are working as a consultant for a perfectly competitive firm that is worried about its policies in the short run. What would you recommend in terms of quantity changes (raise, cut, shut down or stay put) and price changes (raise, cut, stay put) in each of the following two situations:
a) P = $20; MC = $5; TVC = 1250; AFC = $10; TFC = $500.
b) AVC is at its minimum; AFC = $5; ATC = $9; TC = $90; TR = $50
[P = price; Q = quantity; AVC = average variable cost; ATC = average total cost; TC = total cost; MC = marginal cost]
Question 2. Suppose you are working as a consultant for a firm that is a monopoly and is worried about its policies in the short run. What would you recommend in terms of quantity changes (raise, cut, shut down or stay put) and price changes (raise, cut, stay put) in each of the following situations (a through c):
a. MR = $248 P = $268 MC = $198 AVC = $208
b. MR = $298 MC = $348 AVC = $288
c. P = $269 MC = $319 AVC = $289
[P = price; MR = marginal revenue; AVC = average variable cost; MC = marginal cost]
Question 3. Libertyville has two optometrists, Dr. Jones (J) and Dr. Smith (S). Each optometrist can choose to advertise his service or not. The net revenue to each optometrist, in thousands of dollars, is listed on the payoff matrix below. Answer questions a through c:
a. Does Dr. Jones have a dominant strategy?
b. Does Dr. Smith have a dominant strategy?
c. Does a Nash equilibrium exist for this game?
