Econ 2113 Case Study

Econ 2113 Problem Set 2 20258251

1(i). At $14 a pizza, Pat’s profit-maximizing output is 4 pizzas an hour and economic profit is $2 an hour. Marginal revenue equals price, which is $14 a pizza. The marginal cost of increasing output from 3 to 4 pizzas an hour is $13. The marginal cost of increasing output from 4 to 5 pizzas an hour is $15. So, the marginal cost of the fourth pizza is half-way between $13 and $15, which is $14. Marginal cost equals marginal revenue when Pat produces 4 pizzas an hour. Economic profit equals total revenue($14x4) minus total cost ($54). Economic profit is $2.

1(ii). At $12 a pizza, Pat’s profit-maximizing output is 3 pizzas an hour and economic profit is −$5. Marginal revenue equals price, which is $12 a pizza. The marginal cost of increasing output from 2 to 3 pizzas an hour is $11. The marginal cost of increasing output from 3 to 4 pizzas an hour is $13. So, the marginal cost of the

The Nash equilibrium is for both Bud and Wise to expand production. From Bud’s perspective, if Wise limits production Bud’s profit is larger if it expands production. If Wise expands production, then Bud’s profit is larger if Bud expands production. For Bud “expand production” is a dominant strategy. Wise’s situation is similar, so Wise, too, has a dominant strategy of “expand production.

17a.

Resale price maintenance in which a manufacturer agrees with a distributor on the price for which a product will be sold is illegal under the Sherman Act.

17b.The MAP strategy used by Apple is not the same as the Sherman Act prohibition of resale price maintenance because Apple does not agree with the retailer about a fixed price. Instead Apple offers those retailers that do not lower their price below the MAP by giving those retailers money to help them pay for advertising the iPod. On the other hand, Apple sorts of punishes retailers who set a price lower than the MAP by not giving those retailers money to help pay for