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Unformatted text preview: oks remains unchanged after Andrew's monopolization. Assuming Andrew has no marginal cost and wants to maximize profit with a uniformed price. How much should he sell, for how much, and what's his profit? If he maintains this level of profit, what is likely to happen to the market in the long run? (4pt) Answer: MR=300-4Q MC=MR 300-4Q=0 Q=75 P=300-275=$150 =R-C=75150-11,125=$0 Since Andrew makes 0 profit, no one will entre or exit the market in the long run. c) The UBC bookstore sells new books for $200. Half the students prefer new books and will buy them at this price, but they will buy used books if it's offered at a decently cheap price. Specifically, their demand for used books is P2=100-4Q2. If Andrew is able to charge a non-uniform membership fee for those who purchase his textbooks, how much should he charge? After that, how much should he charge per textbook? How much would his profit change from part b? (10pt) Answer: P=MC=0 400-2Q1=0 Q1=100 100-4Q2=0 Q2=25 CS1=4001002=20,000 CS2=100252=1,250 Andrew should charge $20,000 entry fee for the first half of the students, and $1,250 for those who would by new books. This way, his new profit is $21,250, which $1,0125 more than part b. 3. Game Theory The videogame console market is a duopoly consisted of two almost-identical firms, $ony and Macrosoft. The table below illustrates possible pricing strategies of each firm and their potential outcomes: Macrosoft $ony $399 $499 $399 50, 50 70, 30 $599 30, 70 40, 60 a) What are their respective dominant strategies? And what is the Nash Equilibrium? (3pt) Answer: $ony: $399; Macrosoft: $399 Nash Equilibrium: 40, 60 b) Prior to revealing their pricing strategies, $ony somehow tricked Macrosoft to choosing $499 with the following disguise to their outcomes: Macrosoft $399 $499 $399 50+X, 50 70, 30 $599 30, 70 40, 60+Y What is the value of X? (2pt) Answer: 50+X<30 X<-20 60+Y>70 Y>10 c) A third company, Nintendog, attempts to (re)enter the market. To avoid its entrance, $ony and Macrosoft forms a temporary alliance against Nintendog. They can spend extra money on marketing so that entry for Nintendog is not l...
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- Fall '09