You are the final voter in a brand new start-up league, the Ultra Fun Foosball League (UFFL). The directors are looking to you to make the decisions on how many teams to place in a region, the owners have narrowed the ?eld down to letting the Lichtenstein Lobsters compete as a monopoly or add a second identical team in the region, the Lichtenstein Lobos. One of the interns was able to derive the attendance function for the region, which is given as: P = 60 - Q where Q = q1 + q2 if two teams are in the league. Both teams would face the same cost structure: T C = 6q, which means that their marginal cost is M C = 6.
1. How many tickets can the Lobsters sell as a monopoly? What price will they charge? How much profit will they earn?
2. If the UFFL allows the Lobos into the league and they compete as a Cournot duopoly, how many tickets can EACH team charge? What will be the market price? How much profit can EACH team earn?
3. Can the teams act as a cartel and gain more profit? Show why or why not. (Note: Cartels are illegal in Lichtenstein)
4. Draw the 4 individual cost curves on one graph: marginal cost, average total cost, average fixed cost, and average variable cost. Place costs ($) on the y-axis and quantity (Q) on the x-axis. What causes marginal cost to look the way that it does?