ECON 103 Economics Worksheet
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Question 1. 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. [5 points] P = $299
b. [5 points] MR = $150
c. [5 points] P = $288
MC = $349
MC = $100
MC = $288
AVC = $249
AVC = $140
AVC = $287
[Note: P = price; MR = marginal revenue; AVC = average variable cost; MC = marginal cost]
Question 2. Libertyville has two optometrists, Dr. Smith (S) and Dr. Jones (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. [5 points] Does Dr. Smith have a dominant strategy?
b. [5 points] Does Dr. Jones have a dominant strategy?
c. [5 points] Does a Nash equilibrium exist for this game?
Dr. Jones (1)
Don’t
Advertise advertise
Advertise : $185 J: $186
S: $175S: $215
Don’t J: $225 ): $205
advertise S: $165 S: $195
Dr. Smith (S)
Question 3. [10 points] Suppose Wilwaukee Telecom offers its users the option of paying either
(a) $2.00 per minute for telephone service or (b) a $225 flat charge for a year of unlimited toll-free
calls. Consider a customer with an annual demand for telephone service of P= 11 -0.1Q, where P
is the price per minute and Q is the number of minutes of calls made per year. Calculate the
consumer surplus for each of the plans (a) and (b).
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Explanation & Answer:
3 Questions
Tags:
business
market
monopoly
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