Week 11

Managerial Economics

Order of Business

• Homework

• Assigned Lectures

• Other Material

• Lectures for Next Week

Homework-This Week

Problem 1

• A monopolist has a demand function and a cost function given by the following table. How many should he produce? And what price should he sell it? And what will be his profits?

Q P C 0 6 1 15 11 2 13 16 3 11 21 4 8 26 5 7 31 6 6 36 7 5 41

Problem 2

• Q = 420 - 10 P• There is one and

only one way of producing widgets. The cost varies with the number produced at each plant.

Q C 0 0 1 22 2 28 3 36 4 52 5 70

Problem 2

• Q = 420 - 10 P• There is one and

only one way of producing widgets. The cost varies with the number produced at each plant.

Q C 0 0 1 22 2 28 3 36 4 52 5 70

Assume initially that, by law, a firm is limited to operating one and only one plant.

a. What level of output minimizes average cost? Explain your answer.

b. Assuming that the industry is competitive, what will be the price of widgets?

c. How many will be sold?

d. How many plants/firms will produce widgets?

e. Now assume that a firm is allowed a monopoly in the production of widgets. What price will it charge?

Pashigian, Chapter 9, Exercise 5

Pashigian, Chapter 9, Exercise 6

Pashigian, Chapter 9, Exercise 9

Pashigian, Chapter 9, Exercise 11

Lectures for This Week

• Cartels

• Duopoly

• The Cournot Model

• A Second Cournot Example

• Extending the Cournot Model

• The Bertrand Model

• Nash Equilibrium

•Cartels

• Carnegie Watched the Costs and let the profits take care of themselves.

• Form a Pool!

• And of course, they constantly broke down!

•Duopoly

•The Cournot Model

•A Second Cournot Example

•Extending the Cournot Model

•The Bertrand Model

•Nash Equilibrium

Demand for PC’s

Requires:

Intel Chip

Microsoft Windows

Requires:

Intel Chip

Microsoft Windows

Macintosh

Linux

AMD

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MR

P*/2

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MSFT

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MSFT

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Each sets the price at a third of the

maximum price. The combined price

is 2/3 of the max price.

P*

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MSFT

MCMSFT = 0

MCINTL >0.

Lectures for Next Week

• Agency Problems

• Expense Preference

•Agency Problems

•Expense Preference