1. Suppose both Kroger (a grocery store) and Seven-Eleven (a convenience store) can buy half-gallon carton milk at $1.25. For Kroger, the elasticity of demand for a half-gallon carton of milk is (-2.0), whereas, for Seven Eleven, the elasticity of demand is (-1.5).

(a). Kroger sells the half-gallon carton of milk at $2.50 and Seven-Eleven sells it at $2.0. Are there two setting the profit-maximizing price? If not why not?

(b). what price should Kroger and Seven-Eleven set to maximize profits?

(c). Suppose Kroger can negotiate a lower price of $1.10 at which it can buy a half-gallon carton of milk. What price did it set now?

2. The cost of production of a monopolist is given by C(q)=1000+10q. The market demand curve is Q_(D)=40-2p.

(a). Calculate the firms' marginal Revenue

(b). What price and output will be set by the monopolist? Calculate the total profit at that price and output.

(c). What is the efficient output in this market?

(d). What is the surplus that would be gained if the monopolist was forced to produce the efficient output?

3. A specific town in the Midwest obtains all of its electricity from Northstar Electric. Although the company is a monopoly, it is owned by the town's citizens, all of whom split the profits equally at the end of each year. The CEO of the company claims that because all of the profits will be given back to the citizens, it makes economic sense to charge a monopoly price for electricity. True or False? Explain.