Numbers 1, 2, 5 and 6 are 10 points each. Problems 3, 4, 7 and 8 are 5 points each. Please show your work for full credit {3/4 credit for correct answer if work is not shown]. Please send scans as a PDF file. Two Part Pricin 1. The annual demand curve for the typical golfer at Acme Golf is C1 = 120 BF, and the marginal cost is $10 per round. a. Calculate the prot maximizing price and quantity and profit (excl. fixed costs). Calculate consumer surplus (CS) at the profitmaximizing price and quantity. Golfers may pay for each round at the profitmaximizing price you found in part a, or they may become club members. Members will pay a membership fee and pay $10 per round to cover marginal cost. b. What would the membership fee (in dollars) be if the fee is equal to CS for the typical member? c. How would you adjust the membership fee to entice golfers to become members? Indirect Price Discrimination 2. The following table shows how much home users and commercial users are willing to pay for two versions of a software package. Version Home Users Commercial Users $250 $480 $200 $240 Assume there are equal numbers of each type of user and users attempt to maximize consumer surplus (C5 = willing to pay less actually pay). The seller wishes to maximize sales revenue. a. How will the two versions be priced in order to maximize total sales revenue? b. Would your answer change if home users made up 70 % of the market? Explain. Game Theog: Advertising Game 3. Determine the Nash equilibrium for the following payoff matrix (prots in mil. dollars). Values corresponding to Firm A are red. Use the circle technique or if you are submitting online, shade your choices in Yellow. What is the outcome of the game and what is the dilemma? _ -___ -___ 4. The following is a payoff matrix (mil. dollars) for two firm who must decide between building a new store or remodeling the existing store. Values for Firm A are red. Use the circle technique or if you are submitting online, shade your choices in Yellow. _ ___ ___ What is the outcome of the game if Firm A makes a credible first move? What is the outcome of the game if Firm B makes a credible first move? Expected Values 5. a. You're the manager of global opportunities for a US. Manufacturer, who is considering expanding sales into Asia. Your market research has identied the market potential in Malaysia, Philippines, and Singapore as described next: Success Level Malaysia Philippines Singapore Probability Units Probability Units Probability Units Big 0.4 1,000,000 0.5 1,000,000 0.6 600,000 Mediocre 0.2 400,000 0.3 320,000 0.2 200,000 Failure 0.4 0 0.2 200,000 0.2 100,000 The product sells for $10 and has unit costs of $5. If you can enter only one market, and the cost of entering the market (regardless of which market you select) is $300,000, should you enter one of these markets? If so, which one? If you enter, what is your expected profit? b. Based on demand research, you nd that sales of your product change by 2 % for each 1 percent change in per capita consumer income. A forecasting firm has the following forecast for change in income for the next year: 1.0 percent: probability is 10 % 1.0 % increase: 20 % 2.0 % increase: 40 % 3.0 % increase: 30 % Forecast sales for the next year based on the expected change in income. Direct Price Discrimination 6. Demand curves for tickets to a special event are: Adults: gig: 2,000 10 Pa Students: 05 = 2,200 20 Ps Total market: T = 4,200 30 Pt Marginal cost (MC) is a constant $8 per spectator. Ignore fixed cost in your analysis. a. Find the profit-maximizing quantity, price, and profit if a single price is charged. b. Calculate profit-maximizing prices and quantities ifthe event discriminates, i.e., sets different prices for each market segment. Did price discrimination increase profit? If so, by how much? 7. Adverse Selection and Moral Hazard Fill in the 1: ) with \"adverse selection\" or \"moral hazard.\" Joe has two large trees overhanging his house. His wife has been nagging him for years to have the trees removed. His response is: \"Don't worry, we have insura nce.\" This is an example of!= ). Explain. Joe and his twin brotherlim are applying for medical insurance. Joe smokes two packs of cigarettes a day. Jim does not smoke. The applications are accepted, and they pay the same premium, $500 per month. This is an example of g: ). Explain. 8. Perfect Competition and Monopoly There are 20,000 firms supplying a perfectly competitive market. One of the firms, Firm A, experiences an increase of $4 per unit in its marginal cost. What effect, if any, will this development have on price set by Firm A? Explain your answer. A monopolist experiences an increase of $4 per unit in marginal cost. How will this development affect the market price, assuming the monopolist acts to maximize profit? Explain your