1. Catfood. The game company PONOS has a monopoly over catfood, an in-game money in the game Battle Cats. Those who become addicted to Battle Cats very much want catfood, and there is no substitute. The current price of catfood is 3.3 (cents) per unit. The marginal cost of producing catfood is 0, which of course is the great advantage of in-game currencies and items. (a) Assuming 3.3 cents is the monopoly profit-maximizing price, draw a linear demand curve, marginal revenue curve, marginal cost curve, profit maximizing price and and quantity. What rectangle represents PONOS's profit? (b) At the price of 3.3 cents, is the demand for catfood elastic or inelastic? How do you know? 2. KmartWalMart. Suppose that Kmart and Wal-Mart both produce a composite output q which is some measure of floorspace and sales. Kmart's and Wal-Mart's cost curves are c(qK ) = qK c(qW ) = 0.7qW The market demand for the composite good is p(Q) = 5004(qK + qW ). The firms are Cournot's competitors. What is the price and what are Kmart's and Wal-Mart's market shares and profits?