Q.2 Briefly explain the following concepts;

i. The Juice box and Fruzo are the only two juice bars in a small town; a payoff matrix showing their revenue at different price levels. Assume that demand for juice is price inelastic.

Juice box

Higher price

Lower price

Fruzo

Higher price

A

B

Lower price

C

D

Which strategy combination would result in maximum revenue for the two juice bars

and why, briefly explain?

a)Both firms will behave competitively and choose to set a low price

b)The firms will collude to set a high price

c)The Fruzo will set a low price and Juice box will set a high price

d)The Juice box will set a low price and the Fruzo will set a higher price

ii.Refer to the following figure5 marks

a. Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is earning a positive profit? why, briefly explain.

A) Panel aB) Panel bC) Panel dD) Panel c

b. Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is doing its best but still losing money? briefly explain your answer.

A)Panel a B) Panel c C) Panel b D) Panel d

iii.Given the price and quantity of Intel company, 4marks

a)as a monopolist, what is the total effect of a price change from $2,400 to $1,600 on revenue? Break this change into an increase and a decrease.

3800

3600

3400

3200

3000

2800

Price $2600

2400

2200

2000

1800

1600

1400

1200

1000

20406080100120140160180

Quantity of Computer (Intel)

b) As a monopolist, what quantity does Intel produce? What price do they charge?

3800

3600

3400

3200MC

3000

P2800

2600

2400

2200

2000

1800

1600

1400

1200

1000MRAR

20406080100120140160180

Quantity of Computer (Intel)