3rd Year Managerial Economics
i) The inverse demand function facing a monopoly is P=200-O.

If 0<=2OO then TC=5oO

If Q>2OO then TC=1000

Find the

monopoly price, quantity, DWL, competitive output.

ii) Ifthe demand increase to P= 500 €“ 0. What will be the monopoly price and output?

iii) Due to the increased demand for the product, anotherfirm with identical cost structure enters the market. How will the price and
quantity change ifthe firms compete on quantity?

iv) In perfect competition are 100 suppliers, each has a supply function of

P= 20

5ooj.

Find the market supply.

v) When one automaker begins offering low cost financing or rebates, others tend to do the same. What models

might offer an explanation ofthe behaviour?

vi) Firms that make game systems like Playstation and Nintendo typically charge a price close

to average cost on the game system itself, and do not change that price even when the systems are scarce or demand increases. Why might thi
be a profit-maximizing strategy?

vii) You run a golf course at a tourist resort. At your resort, there are two distinct groups of players.

One group owns property at the resort and resides there most ofthe year. On average, each ofthese consumers has a monthly inverse demand
for golf services of P=1OO -0.50. The other group visits for one week at a time and has a total weekly demand curve of P=4O -0.10.
What pricing strategy will maximize your profits? Assume entry to your resort and service of customers is automated.

viii) Most input

prices including that of raw materials and labour are fixed in the short run. Why do the firms then usually have an upward sloping marginal
cost curve?