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Rider University Eco 201- Spring 2012

Dr. Brownschidle Exam #3-Make-Up

Directions: Answer all questions. Be sure to explain your reasoning carefully and show your work in calculations. All work on this exam must be your own. You are permitted to use your text and any other reference materials you cho ose. Some questions may require outside research. topics with anv other classmate or individual is considered academic dishonestv and will be dealt with accordinslv (see policv statement in our svllabus). The exam must be word processed (except for graphs, calculations or equations).

Note: Please keep a copy of the exam for your records. Then submit a hard copy of the exam in a sealed envelope in my faculty mail slot in Sweigart 222. Or e-mail the exam to me at (attach your exam in a single PDF file or Microsoft Word file; no Excel files or multiple files).

Each of the following questions is worth 10 points.

f'raci's Hairstyling is one salon among many in the market for hairstyling. 'Ihe

following table presents cost and revenue data for'l'raci's Flairstyling.

COSTS REVENUES Quantity

Produced Total Cost

Marginal Cost

Quantity Demanded Price

Total Revenue

Marginal Rer-enue

0 $ 1 0 0 $ 5 0 I $ 1 5 I $4s 2 $ 2 1 2 $40 3 $28 3 $ 3 5 4 $ 3 6 4 $30 5 $45 5 $25 6 $ 5 5 6 $20 7 $66 7 $ 1 5 8 $78 I $ 1 0

1) what are the distinguishing features of the retail hairstyling industr,v- number of

firms, entry conditions, product type and conduct of firms? Is the hairstyling industry

an example of monopoly, *onopolistic competition' perfbct competition or

oligopoly? Explain your reasoning carefully' 2) Comprete the iable above- think olthis u, u..orsword p|zre

if they are fun for you'

Use Excel if this will make it easier' 3) Graph the demand curve, marginal revenue, marginal coat

and average total cost'

4) when maximizing profit, whal price does Traci .t *g. for hairstyling? what quantity

maximizes profittt stto* this solution on your graph' 5) At thc profit-maximizing quantity, what i, Truci'r total

profit? Show this solution on

your graph' --r^^rl" ^^-^"litirre rnarket {ml I well being) whatIf this were a perfectly competitive market (maxtmtzrng socla

would the market price and output level? f)efine what is meant by economic profits. will this firm be

able to earn postttve

economic profits in the long run'? Explain your reasoning carefully'

6)

7)

Game theory provides a useful way to analyze decision making when the financial outcomes of your actions are not known with certainty. Consider the following payoff matrix describing Seaworld's profits depending on how Disney reacts to an aggressive price-cutting strate gy.

Sea World Price (Expected Profit)

CUTS

S . W

D I S

50

200

NOT CUT

S.W.

DIS

40

220 CUTS

DISNEY P R I C E

NOT CUT

S.W.

D I S

85 S.W

D I S

75

250230

8. Is there a dominant strategy for Seaworld to pursue regardless of how Disney reacts? What policy should Sea World choose? Explain.

9. Is there a dominant strategy for Seaworld to pursue regardless of how Disney reacts? What policy should Sea World choose? Explain.

10. Given the payoffs above will both be better off as a result of collusion (assuming the Justice Department does not catch them)? Explain.