Individual Problems:
1. Raymond decides to set up a lemonade stand every weekend for the next four weeks to save up for the latest x-men comic. He has to pay his brother Robert $10 as a onetime payment for him to not bully Raymond or drive his customers away. The lemons and sugar cost him $10 (the water is free) and his dad offers to set up his stall for him. He ends up making $15 his first weekend. Frank, his father notices this and advises Raymond to shutdown the stall, while Marie his mother advises him not only to set up the stall next weekend but to increase production even more. Raymond is extremely confused. Who do you think he should listen to?
2. Last year, a toy manufacturer introduced a new toy truck that was a huge success. The company invested $2.5 million for a plastic injection molding machine (which can be sold for $2.0 million) and $100,000 in plastic injection molds specifically for the toy (not valuable to anyone else). Labor and the cost of materials necessary to make each truck is about $3. This year, a competitor has developed a similar toy that has significantly reduced demand for the toy truck. Now, the original manufacturer is deciding whether they should continue production of the toy truck. If the estimated demand is 100,000 trucks, what is the break-even price for the toy truck? Should you shut down?
3. The Burrito Barn is considering a price reduction on the Firegut Burrito, which currently sells for the price of $5.00. Giuseppe, the proprietor of Burrito Barn, knows the price elasticity for the Firegut is roughly equal to -2.3 over the range being considered for the price change. The Firegut has been selling at the brisk pace of 500 burritos per week. To increase market share, Giuseppe would like to increase sales to 750 per week. What price should Giuseppe set?
4. Utility companies can use a mix of plants different energy sources to produce electricity, mainly these are coal fired plants but increasingly they relying on gas turbines. Technological improvements in hydraulic fracturing, or "fracking," have decreased the cost of extracting smaller pockets of natural gas. What affect does fracking have on supply and demand for coal?
5. You are considering launching a strategic alliance with a competitor to join your separate skills to develop a new jointly owned technology. Both you and your partner have the option of fully or partially supporting the alliance. Complete the payoff diagram to make this a Prisoner's Dilemma.
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You fully support alliance
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You partially support alliance
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Partner fully supports alliance
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You: 100 Partner: 100
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You: 150 Partner: 50
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Partner partially supports alliance
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You: 50 Partner: 150
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You: Partner:
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