1) For question (1), answertwoof the options below:

a) How will managers of a monopolistically competitive firm decide on the optimal level of production? Elucidate.

b) Describe market forces that come into play in theshort runif a monopolistically competitive firmis making apositiveeconomic profit. How would this compare to thetypical long-run equilibrium?Explain.

c) You recently noted that a national sports apparel company (in a monopolistically competitive market) hired celebrity professional athletes and signed exclusive contracts with some athletic departments of major universities. Why would the apparel company engage in such behavior? Elucidate.

2) For question (2), answeroneof the options below:

a)True, False Uncertain and Explain: "Happy hour" pricing by bars and restaurants (i.e., lower prices atthe close of the business day) is not a logical outcome. The increase in demand for food and beveragesaround 5:00 p.m. should actually result inhigherprices.

b)True, False Uncertain and Explain: OPEC is a classic example of an oligopolistic cartel able to unite on price and output restrictions on oil in order to extract long-run monopoly profits on world markets. No one producer is large enough to substantially bolster supplies, so there is little incentive to cheat.

3) Mary and Sam are the only two growers who provide organically grown corn to a local grocery store. They know that if they cooperated and produced less corn, they could raise the price of the corn. If they work independently, they will each earn $100. If they decide to work together and both lower their output they can each earn $150. If one person lowers output and the other does not, the person who lowers output will earn $0 and the other person will capture the entire market and will earn $200. {The table belowrepresents the choices available to Mary and Sam.}

*What is the best choice for Sam if he is sure that Mary will cooperate?

*If Mary thinks Sam will cheat, what should Mary doand why?

*What is the prisoner's dilemma result?

		Mary	Mary
		A	B
Sam	A	($100, $100)	($200, $0)
Sam	B	($0, $200)	($150, $150)

Note: A = Work independently; B = Cooperate and Lower Output. Each table entry lists Sam's earnings first, and Mary's earnings second.