Question 1: company Gamma is a profit-maximizing monopolist currently earning positive economic profit. a. Draw a correctly labeled graph for company Gamma. Label the axes and: i. Profit-maximizing price (Pe). ii. Profit-maximizing quantity (Qe). iii. Socially optimal price (Pso). b. Is this firm allocatively efficient? Explain. c. Shade the area of the firms profit. d. Assume this monopolist became able to perfectly price discriminate. Identify of the following would increase, decrease, or remain constant: i. The firms profit-maximizing quantity of output. ii. The firms profit. e. Company Gamma hires in a perfectly competitive labor market. Draw a correctly labeled labor market graph, labeling the axis, equilibrium wage (We), and the equilibrium quantity of labor employed (Qe). f. The government makes a licensing exam no longer required for the labor that company Gamma uses. Illustrate the effect of this change only on the graph from part (e). g. Will the equilibrium wage rate for labor increase, decrease, or stay the same? Question 2: Company Rho operates in a perfectly competitive market and is incurring economic losses. a. Draw correctly labeled side-by-side graphs for the market and for Company Rho. Label the axes and: i. The market price (Pe) and market quantity (Qe). ii. The firms quantity of output (Qe) iii. The firms average total cost (ATC). iv. Completely shade the area of consumer surplus in the market. b. What will happen to the market price and Company Rhos profits in the long run if it remains in the market? Explain. Question 3: company Tau and Company Upsilon are the only sellers of a good with no close substitutes. They are considering whether to increase their store hours. They project the following daily profit payoff scenarios. a. Does company Tau have a dominant strategy to increase store hours, maintain current hours, or no dominant strategy? b. Does company upsilon have a dominant strategy to increase store hours, maintain their current hours, or no dominant strategy? c. Assuming no cooperation, what will the profit be for each firm? d. A local ordinance requires overtime pay amounting to $100 if the companies increase their hours. Draw a new payoff matrix reflecting the cost increase. e. Assuming no cooperation, what will the profit be for each firm after the cost increase?

Company Upsilon Increase Store Hours Keep Current Hours Company Tau Increase Store Hours $640, $850 $450, $350 Keep Current Hours $550, $550 $650, $260