Assignment in attachment
1. The following graph shows a firm operating in a monopolistically competitive
market. How many haircuts will the firm perform in the short term, and at what
price? At this point, what will its total revenue, total cost, and total profit be?
Given your answers, what would we expect to happen in the long term in this
market (i.e., are we at long-term equilibrium, or will we see further changes)?
2. Central Grocery in New Orleans is famous for its muffuletta, a large round
sandwich filled with deli meats and topped with a tangy olive salad. Suppose the
following table represents cost and revenue data for Central Grocery.
cost and revenue data for Central Grocery
Muffaletta
Sold per Day
Pric
e (P)
Total
Revenue
(TR)
Marginal
Revenue
(MR)
Total
Cost
(TC)
Marginal
Cost (MC)
Average
Total Cost
(ATC)
P
r
o
fi
t
0 $15 $12
1 14 18
2 13 20
3 12 21
4 11 23
5 10 26
6 9 30
7 8 35
8 7 42
9 6 52
10 5 78
Fill in the table. What is the profit-maximizing price and quantity, and what profit will be
earned at that production level?
3. Consider two beer producers, POTUS Pilsner and Supreme Court Stout. If they
advertise, they can sell more beer and increase their revenue. However, advertising
costs offset the increased revenue so that each producer ends up with a lower profit
than if they do not advertise. On the other hand, if only one advertises, that producer
increases its market share and profit.
A. Construct a payoff matrix using the following hypothetical information: If neither
producer advertises, each earns a profit of $35 million per year. If both promote,
each will make a profit of $20 million per year. If one advertises and the other does
not, the producer who advertises earns a profit of $50 million, and the producer who
does not make a profit of $9 million.
B. If POTUS Pilsner wants to maximize profit, will it advertise? Briefly explain.
C. If Supreme Court Stout wants to maximize profit, will it advertise? Briefly explain.
D. Is there a dominant strategy for each producer? Briefly explain.
