1. (5 points) Suppose a firm with market power faces an inverse demand curve P = 130 1.5Q and has marginal costs, MC = 10. Their profit function is = (130 1.5Q)Q 10Q. Calculate the firm's profit maximizing quantity, Q , the price P , and its profit . 2. (5 points) Suppose the price of a Big Mac is $3.59 in Pawtucket, RI but $4.19 just over the border in Attleboro, MA. Consumer demand for Big Macs and the fixed cost of operating the McDonald's restaurant is the same in each location. McDonald's pays its workers the minimum wage in each state, which is $10.50 in RI and $12 in MA, but all other marginal costs are the same in each location. Is the difference in Big Mac prices between Pawtucket and Attleboro evidence of price discrimination? Explain. 3. (6 points) Suppose 2 competitors (A and B) each own a Del's Lemonade cart and must simultaneously decide where to set up their carts on the sidewalk along a beach in order to maximize their profit. Each owner can set up a cart at either end of the sidewalk or anywhere in between. (Assume the sidewalk is a simple line along the the beach). Their customers are equally distributed across the beach. If A sets up his cart at one end of the beach, what is the best response strategy for B (where should B set up his cart in response)? Given B's best response from your previous answer, how should A react (where would A move their cart in response)? Given these answers, where would the 2 competitors end up placing their carts? Explain. 4. (4 points) Suppose your product is used by business professionals and hobbyists. Business professionals have a price elasticity of demand of -0.3, while hobbyists have a price elasticity of demand of -1.5. Your boss asks you to figure out a pricing strategy for your product. Who should be charged a higher price? Explain. (3 points) How might you separate these two customer groups? (1 point)