Marginal Cost Average Total Cost Average Variable Cost 12 10 8. Demand 3. 10 22 33 45 58 78 Quantity Marginal Revenue GaterTools, a profit-maximizing firm, has a patent on a power tool, making it the only producer of that power tool. The graph above shows GaterTools' demand, marginal revenue, average total cost, average variable cost, and marginal cost curves. (a) Calculate GaterTools' total revenue if the firm produces the allocatively efficient quantity. Show your work. (b) Starting at a price of $12, if GaterTools were to increase the price by 4%, will the quantity demanded decrease by more than 4%, less than 4%, or exactly 4%? Explain. (c) At a quantity of 10 units, is GaterTools' marginal product increasing, decreasing, or constant? Explain. (d) Identify the quantity that maximizes GaterTools' profit. Explain. (e) At the quantity identified in part (d), does GaterTools earn a positive economic profit, a negative economic profit, or zero economic profit? Explain. Assume that GaterTools' patent expires. HandyBilt, a company with the capability to produce the same power tool as Price, Cost ($) CO7 54
Gater Tools, a profit-maximizing firm, has a patent on a power tool, making it the only producer of that power tool. The
graph above shows GaterTools' demand, marginal revenue,
curves.
(a) Calculate GaterTools' total revenue if the firm produces the
(b) Starting at a
more than 4%, less than 4%, or exactly 4%? Explain.
(c) At a quantity of 10 units, is GaterTools' marginal product increasing, decreasing, or constant? Explain.
(f) Does GaterTools have a dominant strategy? Explain using numbers from the payoff matrix.
(g) Identify the Nash equilibrium. Explain why this is a Nash equilibrium using information from the payoff matrix.
(h) Suppose HandyBilt makes a credible commitment to GaterTools that if GaterTools maintains its price, then HandyBilt
will pay GaterTools $250. Will this offer result in a Nash equilibrium with different strategies from those identified in part
(g) ? Explain using numbers from the payoff matrix.
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