1. There are two brands of cigarettes X, Y. The demand for each is as follows: Qx = 80 - 2p   Qy = 60 - 0.5p Assume that the marginal cost of producing cigarette X is $10, the marginal cost of producing cigarette Y is $8, and that the market for both cigarettes is perfectly competitive. Assume that each pack of cigarette X smoked does $5 worth of health damage to the smoker, and a total of $4 worth of health damage to the smoker’s neighbors via second-hand smoke. Each pack of cigarette Y smoked does $6 worth of health damage to the smoker, and $5 health damage to the smoker’s neighbors. a. Suppose the government decides to pursue a Pigouvian solution to eliminate social loss. What's amount of tax or subsidy would the government implement? What's the resulting quantity of demand for both cigarettes. b. Besides the Pigouvian solution, what else solution do you have? What are the conditions in order to successfully implement this?

Offer Bud Light Don't Offer New Ads New Ads Offer New Ads B: $100 B: $50 M: $100 M: $200 Miller Lite Don't Offer New Ads B: $200 M: $50 B: $120 M: $120 Refer to Table 14.2.4. The marketers of Budweiser Light beer and Miller Lite beer must decide whether or not to offer new advertising campaigns promoting their products. The payoffs in the table are the economic profit made by Bud and Miller. Which one of the following observations is correct? This game has no Nash equilibrium. Bud has a dominant strategy but Miller does not. This game has no dominant strategies. Bud and Miller each have a dominant strategy. Miller has a dominant strategy but Bud does not.

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5. Suppose you are in charge of pricing for an airline. There are two types of customers: businesspeople and tourists. There are 100 customers of each type, and each customer buys at most one ticket. The table below shows the maximum they would pay ("willingness to pay") for each ticket type: Economy £300 £200 First Class £500 Businessperson Tourist £250 A customer's payoff from buying a ticket is the difference between the customer's willingness to pay and the price. Suppose that the marginal cost of both economy and first-class seats is zero. a) If you could engage in first-degree price discrimination, which tickets would you sell to each customer and how much would you charge? b) For the remainder of this question, suppose that you cannot tell who is a businessperson and who is a tourist. What prices should you charge for economy and first-class seats to maximise profits? c) How would the optimal prices change if instead there were 150 businesspeople and 50 tourists?

Microsoft sells two types of office software, a word processor it calls Word, and a spreadsheet it calls Excel. Both can be produced at zero marginal cost. There are two types of consumers for these products, who exist in roughly equal proportions in the population: authors, who are willing to pay $120 for Word and $40 for Excel, and economists, who are willing to pay $50 for Word and $150 for Excel. a. Suppose that Microsoft execs decide to sell Word and Excel separately. What price should Microsoft set for Word? What price should Microsoft set for Excel? What will Microsoft's profit be from a representative group of one author and one economist? c. Suppose that Microsoft decides to bundle together Word and Excel in a package called Office, and not offer them individually. What price should Microsoft set for the package? Why? How much profit willI Microsoft generate from a representative group of one author and one economist? d. Does bundling allow Microsoft to generate higher profit…

1. There are two brands of cigarettes X, Y. The demand for each is as follows: Qx = 80 - 2p     Qy = 60 - 0.5p Assume that the marginal cost of producing cigarette X is $10, the marginal cost of producing cigarette Y is $8, and that the market for both cigarettes is perfectly competitive. Assume that each pack of cigarette X smoked does $5 worth of health damage to the smoker, and a total of $4 worth of health damage to the smoker’s neighbors via second-hand smoke. Each pack of cigarette Y smoked does $6 worth of health damage to the smoker, and $5 health damage to the smoker’s neighbors.  (a) Plot the private demand curve and private supply curve for both cigarettes on separate axes. (b) What is the privately efficient quantity demand of both cigarettes? (c) Add the public supply curves to the graphs you plot in (a). (d) What is the socially efficient quantity demand of both cigarettes?

The widget market is competitive and includes no transaction costs. Five suppliers are willing to sell one widget at the following prices: $26, $14, $10, $5, and $3 (one seller at each price). Five buyers are willing to buy one widget at the following prices: $10, $14, $26, $34, and $42 (one buyer at each price). For each price shown in the following table, use the given information to enter the quantity demanded and quantity supplied. Price Quantity Demanded Quantity Supplied ($ per widget) (widgets) (widgets) $3 $5 $10 $14 $26 $34 $42 In this market, the equilibrium price will be per widget, and the equilibrium quantity will be widgets.

QUESTION 21 (Table: GoGo Gas and Fanny's Fantastic Fuel) Use Table: GoGo Gas and Fanny's Fantastic Fuel. The table shows a payoff matrix for GoGo Gas and Fanny's Fantastic Fuel in a small town. Each firm can set either a high price or a low price, and customers view both gas stations as nearly perfect substitutes. Profits in each cell of the payoff matrix are given as (GoGo's profit, Fanny's profit). If each firm sets the price independently, the Nash equilibrium outcome will be: Table: GoGo Gas and Fanny's Fantastic Fuel Fanny's Fantastic Fuel High Price S100, S100 $25, $150 $150, $25 Low Price High Price Low Price GoGo Gas $50, $50 O a $100, $100. b. $150, $25. c. $25, $150. d. S50, $50

Consider the demand curve illustrated in the figure to the right. Suppose at a price of $8 per unit, a firm's corresponding revenue is represented by the green shaded area. 10.00- 9.00- What is the firm's revenue? 8.00- The firm's revenue equals $0. (Enter your 7.00- response as an integer.) 6.00- 5.00- 4.00- 3.00- 2.00- 1.00- Demand 0.00- 200 1000 400 Quantity 600 800 Price ($ per unit)

Is price an indicator of quality?  Explain and give an example we didn’t discuss in class. Use a supporting information to help illustrate your answer (a current example or advertisement).