2. (15 points) Suppose a consumer's demand function for a good produced by a firm with market power is Q = 5- 0.5P, and the
2. (15 points) Suppose a consumer's demand function for a good produced by a firm with market power is Q = 5- 0.5P, and the firm has total cost of TC = 2Q. What price should the firm charge for a 4-unit pack, and how much profit would the firm make? > MC TR = PQ = ( 10- 20 ) Q = 10Q - 202 1= 10-20 MR = 10 - 40 MC = 2 since the MC is constant , the company is in a perfect competitive market MC Mc = Pe = 2 ". TC = 2 x 4 - 8 profit = Pe. Q-TC = 2* 4- 8= 0 3. (10 points) According to International Data Corporation, the number of worldwide smartphone owners will soon exceed 3 billion. That number is expected to grow at nearly 10% per year for the next five years. While the actual cost of a smartphone is about $300, wireless carriers in some countries offer their customers a "free" smartphone with a two-year wireless service agreement. Is this pricing strategy rational for the firm? Explain
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