7. Use the information in the following table, whichsummarizes the payoffs (i.e., profit) to two firms that must decide between anaverage-quality and a high quality product, to answer the questions...

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7. Use the information in the following table, which summarizes the payoffs (i.e., profit) to two firms that must decide between an average-quality and a high quality product, to answer the questions that follow:


Firm 2 Average Quality High Quality


Firm 1 Average Quality 600, 600 400, 1100


High Quality 1100, 400 900, 900


























Firm 2




Firm 1




Average Quality



High Quality



Average Quality




600



600




1100



400



High Quality




400



1100




900



900



a. What is each player's dominant strategy? Explain your reasoning.
If Firm 1 chooses High Quality and Firm 2 chooses Average Quality then Firm 1 will have the dominant strategy because the outcome will result in the highest payoff no matter what action or choice Firm 2 make.


b. Referring to the table above, is this an example of a prisoner's dilemma game? Why or why not?


c. Is there a Nash equilibrium? If so, what is it?


8. Commercial Recording, Inc., is a manufacturer and distributor of reel-to-reel recording decks for commercial recording studios. Revenue and cost relations are:


TR = $3,000Q - $0.5Q2


MR = ?TR/?Q = $3,000 - $1Q


TC = $100,000 + $1,500Q + $0.1Q2


MC = ?TC/?Q = $1,500 + $0.2Q



  1. Calculate output, marginal cost, average cost, price, and profit at the average cost-minimizing activity level.



Answered Same DayDec 21, 2021

Answer To: 7. Use the information in the following table, whichsummarizes the payoffs (i.e., profit) to two...

Robert answered on Dec 21 2021
131 Votes
Managerial Economics Final Exam (Problems)
Managerial Economics (Problems)
1. A. Marginal Analysis. Fill in the missing data for price (P), total revenue (TR), marginal revenue (MR), total cost (TC), marginal cost (MC), profit ()
, and marginal profit (M) in the following table:
Q
P
TR
MR
TC
MC
M
0
$230
$0
$ --
$0
$--
$0
$ --
1
210
$210
210
10
10
200
200
2
190
$380
170
30
20
350
150
3
170
$510
130
60
30
450
100
4
150
$600
90
100
40
500
50
5
130
$650
50
160
60
490
-10
6
110
$660
10
230
70
430
-60
7
90
$630
-30
310
80
320
-110
8
70
$560
-70
400
90
160
-160
B. At what output (Q) level is profit maximized? Profit is maximized at a level of 4 outputs which the profits is at its highest of $500 where MR >MC.
C. At what output (Q) level is revenue maximized? The revenue is maximized at 6 outputs which the revue is $660.
D. Discuss any differences in your answers to parts B and C. The difference is that in question (a) the profit is maximized at a level of 4 outputs where the marginal revenue is greater than the marginal cost which means the business is making money. In comparison to question (b) the revenue is maximized at a level of 6 outputs to $660 but the marginal cost is greater than the marginal revenue which means the business is loosing money on every product they produce.
2. Use the following information on a hypothetical short-run production function to answer questions a-c.
Units of Labor/Day 5 6 7 8 9
Units of Output/Day 120 140 155 165 168
The price of labor is $20 per day. Ten units of capital are used each day, regardless of output level. The price of capital is $50 per unit.
a. Calculate the marginal and average variable product of each unit of labor input.
    K
    L
    TP
    AP
    MP
    10
    5
    120
    24
    120
    10
    6
    140
    23.33
    20
    10
    7
    155
    22.14
    15
    10
    8
    165
    20.63
    10
    10
    9
    168
    18.67
    3
b. Calculate total, average total, average variable and marginal costs.
    K
    L
    TP
    TFC
    TVC
    TC
    AFC
    ATC
    MC
    10
    5
    120
    500
    100
    600
    $4.17
    $5.00
    $5.00
    10
    6
    140
    500
    120
    620
    $3.57
    $4.43
    $1.00
    10
    7
    155
    500
    140
    640
    $3.23
    $4.13
    $1.33...
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