1. Explain with two detailed, clearly labelled graphs (a la comparative static analysis) the economic rearrangement of value and loss of value associated with a government per-unit subsidy. 2. Consider a monopoly with the following demand and cost structure. Demand: P = 80 3Q. TC = 10 + 10Q + 0.5Q2 . a) What is the monopolists profit maximizing price and quantity? b) What is the DWL associated with this outcome, compared to the hypothetical perfectly competitive outcome? c) Is this firm a natural monopoly? Why or why not. 3. Consider the following pay-off matrix, showing monthly profit in thousands of dollars. The two firms compete in a fast food environment in which two strategies are considered: Strategy one (S1) is Low price, little advertising; S2 is high price, heavy advertising. The first number in each cell represents profit for McD. a) Does McD have a dominant strategy? If yes, what is it? b) Does BK have a dominant strategy? If yes, what is it? c) Is there a Nash equilibrium? Explain. BK S1 S2 McD S1 60, 55 56, 45 S2 58, 50 60, 40 4. Consider a duopoly in which market demand is P = 40 Q, where P is price per unit in dollars and Q is total number of units, Q = Q1 + Q2, the sum of production by the two firms. Suppose marginal cost is $10 per unit. a) What is firm 1s reaction function? (Remember to show all work for each answer.) b) What is the Cournot solution (Qi) for each firm? c) What is the equilibrium market price?