2. Gary's Greenhouse is a single-price monopolist that 4. The following diagram shows the pricing strategies and payoffs for the two bubble gum firms in town. sells tulips and earns a normal profit. a. Draw a correctly labeled graph for Gary's Long Lasting Flavor Co. Greenhouse showing the following: Set high prices Set low prices i. the profit-maximizing price and quantity, Big $400, $250 labeled as Pm and Qm Bubble Set high prices $200, $350 Co Set low prices $500, $100 $150, $50 ii. the area of total cost, shaded completely b. Label a point A to indicate the left end of the a. Does Big Bubble Co. have a dominant strategy? inelastic portion of the demand curve. (7 points) Explain. 3. The hot dog stand industry in Frankland is b. Does Long Lasting Flavor Co. have a dominant monopolistically competitive. A typical stand produces strategy? Explain. and sells 10,000 hot dogs during the summer season. c. Does this situation have any Nash equilibria? For that stand, the price per hot dog is $3.00, the Explain. (6 points) average total cost is $1.00 at the current production 5. The drone industry is made up of a small number of level, and the marginal cost is $0.50 at the current interdependent firms. production level. a. What market structure best describes this industry? a. Draw a correctly labeled graph of this typical hot dog stand under current market conditions, labeling b. Suppose drone makers try to collude by agreeing to restrict output and raise prices. Aside from issues the equilibrium quantity and the equilibrium price of legality, what else would make it difficult for this with the numbers provided. b. Calculate the economic profit or loss for the typical form of collusion to succeed? hot dog stand. c. Explain how price leadership could lead to relatively c. On your graph from part a, shade in the area of the high prices in the drone industry. profit or loss. d. If one firm lowers its price this period, how would a competitor following the tit-for-tat strategy respond Now assume that the government imposes a $20,000 next period? (4 points) lump-sum license fee for the summer season. d. What happens to the price and quantity for the typical hot dog stand as a result of the license fee? Explain. e. Show the impact of the license fee on the graph from part a and provide a clear label for anything that changed. f. What will happen to the number of hot dog stands over the course of the season? Explain. (10 points) 714 Micro . Unit 4 Imperfect Competition