Kaplan BU224 final exam

Answer the following questions based on the
following information. Suppose that Media Cable is a single-price
monopolist in the market for cable in Anywhere, Iowa. Media has five
potential customers: Morgan, Larry, Clyda, Janet, and Tom.

Each of these customers are willing to
purchase cable service, but only if the price is just equal to, or lower
than, his or her willingness to pay. Morgan’s willingness to pay is $130;
Larry’s, $100; Clyda’s, $80; Janet’s, $40; and Tom’s, $0.

Media Cable’s marginal cost per
cable package is $40. The accompanying table shows Media
Cable’s demand schedule: Total Revenue and Marginal Revenue at each price
level.

Price of
Cable Service

Qty of Cable
Service demanded

Total Revenue

Marginal Revenue

$160

0

0

–

130

1

$130

$130

100

2

$200

$70

80

3

$240

$40

40

4

$160

– $80

0

5

0

– $160

Why does a monopolist face a downward sloping demand curve? (Points : 8)

More people are going to want
to pay the minimum price offered. If they are offering free cable then many
people will want to take advantage of that.
Fewer people are willing to pay a higher price. More people are
willing to pay a lower price but Media Cable is less willing to provide the
service at the lower price.
More people are willing to
pay for cable as the price of cable service decreases.
Because the price Media Cable
expects to receive for its output will not remain constant as output
increases.
Media Cable is the only
producer of cable in this market, so its demand curve is the market demand
curve for the entire industry.

Answer the
following questions based on the following information. Suppose that
Media Cable is a single-price monopolist in the market for cable in
Anywhere, Iowa. Media has five potential customers: Morgan, Larry, Clyda,
Janet, and Tom.

Each of
these customers are willing to purchase cable service, but only if the
price is just equal to, or lower than, his or her willingness to pay.
Morgan’s willingness to pay is $130; Larry’s, $100; Clyda’s, $80;
Janet’s, $40; and Tom’s, $0.

Media
Cable’s marginal cost per cable package is $40. The
accompanying table shows Media Cable’s demand schedule: Total Revenue and
Marginal Revenue at each price level.

Price of
Cable Service

Qty of Cable
Service demanded

Total Revenue

Marginal Revenue

$160

0

0

–

130

1

$130

$130

100

2

$200

$70

80

3

$240

$40

40

4

$160

– $80

0

5

0

– $160

Why is the marginal revenue from an additional sale less than the price
of the service? (Points : 8)

It costs less to provide a service in bulk.
Lowering the price means
that Media Cable lowers the price on all cable packages sold, and that
lowers its total revenue.
When the average falls, the marginal revenue also falls.
The higher the quantity the lower the sale price.
Marginal revenue is calculated by finding the change in total
revenue or the change in quantity.

Question
3 of 10
Answer the following questions based on the
following information. Suppose that Media Cable is a single-price monopolist
in the market for cable in Anywhere, Iowa. Media has five potential
customers: Morgan, Larry, Clyda, Janet, and Tom.

Each of these customers are willing to purchase
cable service, but only if the price is just equal to, or lower than, his or
her willingness to pay. Morgan’s willingness to pay is $130; Larry’s, $100;
Clyda’s, $80; Janet’s, $40; and Tom’s, $0.

Media Cable’s marginal cost per cable
package is $40. The accompanying table shows Media Cable’s
demand schedule: Total Revenue and Marginal Revenue at each price level.

Price of
Cable Service

Qty of Cable
Service demanded

Total Revenue

Marginal Revenue

$160

0

0

–

130

1

$130

$130

100

2

$200

$70

80

3

$240

$40

40

4

$160

– $80

0

5

0

– $160

Suppose Media Cable currently charges $80 for its service. If it lowered the
price to $40, how large is the price effect?(Points : 8)

$70
$200
$40
$160
$120

Answer the following questions based on the
following information. Suppose that Media Cable is a single-price monopolist
in the market for cable in Anywhere, Iowa. Media has five potential
customers: Morgan, Larry, Clyda, Janet, and Tom.

Each of these customers are willing to purchase
cable service, but only if the price is just equal to, or lower than, his or
her willingness to pay. Morgan’s willingness to pay is $130; Larry’s, $100;
Clyda’s, $80; Janet’s, $40; and Tom’s, $0.

Media Cable’s marginal cost per cable
package is $40. The accompanying table shows Media Cable’s
demand schedule: Total Revenue and Marginal Revenue at each price level.

Price of
Cable Service

Qty of Cable
Service demanded

Total Revenue

Marginal Revenue

$160

0

0

–

130

1

$130

$130

100

2

$200

$70

80

3

$240

$40

40

4

$160

– $80

0

5

0

– $160

Suppose Media Cable currently charges $80 for its service. If it lowered the
price to $40, how large is the quantity effect?(Points : 8)

$120
$160
$70
$40
$200

Time Remaining:

Question
5 of 10
Answer the following questions based on the
following information. Suppose that Media Cable is a single-price
monopolist in the market for cable in Anywhere, Iowa. Media has five
potential customers: Morgan, Larry, Clyda, Janet, and Tom.

Each of these customers are willing to
purchase cable service, but only if the price is just equal to, or lower
than, his or her willingness to pay. Morgan’s willingness to pay is $130;
Larry’s, $100; Clyda’s, $80; Janet’s, $40; and Tom’s, $0.

Media Cable’s marginal cost per
cable package is $40. The accompanying table shows Media
Cable’s demand schedule: Total Revenue and Marginal Revenue at each price
level.

Price of
Cable Service

Qty of Cable
Service demanded

Total Revenue

Marginal Revenue

$160

0

0

–

130

1

$130

$130

100

2

$200

$70

80

3

$240

$40

40

4

$160

– $80

0

5

0

– $160

What is the profit maximizing quantity and price for
Media Cable? (Points
: 8)

2 at $100
4 at $40
3 at $80
1 at $130
5 at $0

Question 6 of 10Dr. Fine and Dr. Feelgood
are the only two medical doctors offering immediate walk-in medical
services in the town of Springfield. That is, they operate in a duopoly.
Each doctor can charge either a high price or a low price for a standard
medical visit. The accompanying matrix shows their payoffs, in profits
per patient (in dollars), for any choice that the two doctors can make
and tables a. through d. show two periods of various pricing choices.
Some tables may be suitable answers for more than one outcome.

Table
a.

FIRST Period

Payoffs

SECOND Period

Payoffs

TOTAL Payoffs

Charges
(high or low)

Charges
(high or low)

Fine

Low

35

Fine

Low

35

70

Feelgood

Low

35

Feelgood

Low

35

70

Table b.

FIRST Period

Payoffs

SECOND Period

Payoffs

TOTAL Payoffs

Charges
(high or low)

Charges
(high or low)

Fine

Low

45

Fine

Low

35

80

Feelgood

High

0

Feelgood

Low

35

35

Table c.

FIRST Period

Payoffs

SECOND Period

Payoffs

TOTAL Payoffs

Charges
(high or low)

Charges
(high or low)

Fine

High

0

Fine

Low

35

35

Feelgood

Low

45

Feelgood

Low

35

80

Table d.

FIRST Period

Payoffs

SECOND Period

Payoffs

TOTAL Payoffs

Charges
(high or low)

Charges
(high or low)

Fine

High

38

Fine

High

38

76

Feelgood

High

38

Feelgood

High

38

76

Which
table above correctly portrays the outcomes, if Dr. Fine plays
tit-for-tat and Dr. Feelgood cheats? (Points : 8)

Table a
Table d
Table b
Table c

Dr. Fine and Dr. Feelgood are
the only two medical doctors offering immediate walk-in medical services in
the town of Springfield. That is, they operate in a duopoly. Each doctor can
charge either a high price or a low price for a standard medical visit. The
accompanying matrix shows their payoffs, in profits per patient (in dollars),
for any choice that the two doctors can make and tables a. through d. show
two periods of various pricing choices. Some tables may be suitable answers
for more than one outcome.

Table a.

FIRST Period

Payoffs

SECOND Period

Payoffs

TOTAL Payoffs

Charges
(high or low)

Charges
(high or low)

Fine

Low

35

Fine

Low

35

70

Feelgood

Low

35

Feelgood

Low

35

70

Table b.

FIRST Period

Payoffs

SECOND Period

Payoffs

TOTAL Payoffs

Charges
(high or low)

Charges
(high or low)

Fine

Low

45

Fine

Low

35

80

Feelgood

High

0

Feelgood

Low

35

35

Table c.

FIRST Period

Payoffs

SECOND Period

Payoffs

TOTAL Payoffs

Charges
(high or low)

Charges
(high or low)

Fine

High

0

Fine

Low

35

35

Feelgood

Low

45

Feelgood

Low

35

80

Table d.

FIRST Period

Payoffs

SECOND Period

Payoffs

TOTAL Payoffs

Charges
(high or low)

Charges
(high or low)

Fine

High

38

Fine

High

38

76

Feelgood

High

38

Feelgood

High

38

76

Which table above correctly portrays the outcomes,
if Dr. Feelgood plays tit-for-tat and Dr. Fine cheats? (Points : 8)

Table d
Table a
Table b

Question 8 of 10Dr. Fine and Dr. Feelgood are
the only two medical doctors offering immediate walk-in medical services in
the town of Springfield. That is, they operate in a duopoly. Each doctor
can charge either a high price or a low price for a standard medical visit.
The accompanying matrix shows their payoffs, in profits per patient (in
dollars), for any choice that the two doctors can make and tables a.
through d. show two periods of various pricing choices. Some tables may be
suitable answers for more than one outcome.

Table
a.

FIRST Period

Payoffs

SECOND Period

Payoffs

TOTAL Payoffs

Charges
(high or low)

Charges
(high or low)

Fine

Low

35

Fine

Low

35

70

Feelgood

Low

35

Feelgood

Low

35

70

Table b.

FIRST Period

Payoffs

SECOND Period

Payoffs

TOTAL Payoffs

Charges
(high or low)

Charges
(high or low)

Fine

Low

45

Fine

Low

35

80

Feelgood

High

0

Feelgood

Low

35

35

Table c.

FIRST Period

Payoffs

SECOND Period

Payoffs

TOTAL Payoffs

Charges
(high or low)

Charges
(high or low)

Fine

High

0

Fine

Low

35

35

Feelgood

Low

45

Feelgood

Low

35

80

Table d.

FIRST Period

Payoffs

SECOND Period

Payoffs

TOTAL Payoffs

Charges
(high or low)

Charges
(high or low)

Fine

High

38

Fine

High

38

76

Feelgood

High

38

Feelgood

High

38

76

Which table above correctly portrays the outcomes, if both doctors
always cheat? (Points
: 8)

Table c
Table b
Table d
Table a

Table c

Dr. Fine and Dr. Feelgood are
the only two medical doctors offering immediate walk-in medical services in
the town of Springfield. That is, they operate in a duopoly. Each doctor can
charge either a high price or a low price for a standard medical visit. The
accompanying matrix shows their payoffs, in profits per patient (in dollars),
for any choice that the two doctors can make and tables a. through d. show
two periods of various pricing choices. Some tables may be suitable answers
for more than one outcome.

Table
a.

FIRST Period

Payoffs

SECOND Period

Payoffs

TOTAL Payoffs

Charges
(high or low)

Charges
(high or low)

Fine

Low

35

Fine

Low

35

70

Feelgood

Low

35

Feelgood

Low

35

70

Table b.

FIRST Period

Payoffs

SECOND Period

Payoffs

TOTAL Payoffs

Charges
(high or low)

Charges
(high or low)

Fine

Low

45

Fine

Low

35

80

Feelgood

High

0

Feelgood

Low

35

35

Table c.

FIRST Period

Payoffs

SECOND Period

Payoffs

TOTAL Payoffs

Charges
(high or low)

Charges
(high or low)

Fine

High

0

Fine

Low

35

35

Feelgood

Low

45

Feelgood

Low

35

80

Table d.

FIRST Period

Payoffs

SECOND Period

Payoffs

TOTAL Payoffs

Charges
(high or low)

Charges
(high or low)

Fine

High

38

Fine

High

38

76

Feelgood

High

38

Feelgood

High

38

76

Which table above correctly portrays the outcomes, if Dr. Fine plays
tit-for-tat and Dr. Feelgood plays tit-for-tat? (Points : 8)

Table c
Table d
Table b
Table a

Question 10 of 10Dr. Fine and Dr. Feelgood are
the only two medical doctors offering immediate walk-in medical services in
the town of Springfield. That is, they operate in a duopoly. Each doctor can
charge either a high price or a low price for a standard medical visit. The
accompanying matrix shows their payoffs, in profits per patient (in dollars),
for any choice that the two doctors can make and tables a. through d. show
two periods of various pricing choices. Some tables may be suitable answers
for more than one outcome.

Table
a.

FIRST Period

Payoffs

SECOND Period

Payoffs

TOTAL Payoffs

Charges
(high or low)

Charges
(high or low)

Fine

Low

35

Fine

Low

35

70

Feelgood

Low

35

Feelgood

Low

35

70

Table b.

FIRST Period

Payoffs

SECOND Period

Payoffs

TOTAL Payoffs

Charges
(high or low)

Charges
(high or low)

Fine

Low

45

Fine

Low

35

80

Feelgood

High

0

Feelgood

Low

35

35

Table c.

FIRST Period

Payoffs

SECOND Period

Payoffs

TOTAL Payoffs

Charges
(high or low)

Charges
(high or low)

Fine

High

0

Fine

Low

35

35

Feelgood

Low

45

Feelgood

Low

35

80

Table d.

FIRST Period

Payoffs

SECOND Period

Payoffs

TOTAL Payoffs

Charges
(high or low)

Charges
(high or low)

Fine

High

38

Fine

High

38

76

Feelgood

High

38

Feelgood

High

38

76

Suppose the two doctors play a one-shot game – that is, they interact
only once and never again. What will be the Nash (non-cooperative)
equilibrium pricing strategy in this one-shot game? (Points : 8)

Both to charge the low price
Dr. Feelgood to charge the low
price and Dr. Fine to charge the high price
Dr. Feelgood to charge the high
price and Dr. Fine to charge the low price
Both to charge the high price