AP 1 . Gary's Gym, a profit-maximizing firm, has a patent on an exercise device, making it the Marginal Cost only producer of that device. The graph above shows Gary's Gym's demand, marginal Price, Cost ($) revenue, average total cost, average variable Average Total cost, and marginal cost curves. Cost a) Calculate Gary's Gym total revenue if Average Variable 51 Cost the firm produces the allocationy efficient quantity. Show your work. b ) Starting at a price of $39. if Gary's 39 Gym were to decrease the price by NN Demand 5%, will the quantity demanded increase by more than 5%, by less than 5%, or by exactly 5%? Explain. O 22 29 3943 Quantity c) At a quantity of 16 units, is Gary's Gym's marginal product increasing, Marginal decreasing, or constant? Explain. Revenue d) Identify the quantity that maximizes Gary's Gym profit. Explain. e) At the quantity identified in part (d), does Gary's Gym earn a positive economic profit, a negative economic profit, or zero economic profit? Explain. Assume that Gary's Gym's patent expires. E-Fitness, a company with the capability to produce the same exercise device as Gary's Gym, intends to enter the market and charge a lower price than Gary's Gym for the exercise device. Gary's Gym is considering whether to maintain its price or to lower its price to match E-Fitness' price. E-Fitness is considering whether or not to advertise its entry into the market. The matrix below shows the payoffs for each combination of strategies, and both players (Gary's Gym and E-Fitness) have complete information. The first entry in each cell represents Gary's Gym's payoff and the second entry represents E-Fitness' payoff. Each player independently and simultaneously chooses its strategy. Use the matrix provided below to answer parts (1)-(h). E-Fitness Advertise Not Advertise Maintain Price $350, $450 $700, $300 GarysGym Lower Price $580, $500 $460, $200 Does Gary's Gym have a dominant strategy? Explain using numbers from the payoff matrix. g) Identify the Nash equilibrium. Explain why this is a Nash equilibrium using information from the pay matrix. h ) Suppose Gary's Gym makes a credible commitment to E-Fitness that if E-Fitness does not advertise, Gary's Gym will pay E-Fitness $100. Will this offer result in a Nash equilibrium with different strate from those identified in part (g) ? Explain using numbers from the payoff matrix