Questions1-3

In this set of questions I ask you to consider the market for legal services. Specifically, I ask youto consider activity by independent lawyers who aren't affiliated with larger law firms.Youshould assume the legal market is segmented; in particular, demand for the services ofindependentlawyers doesn't interactwith thedemand fortheservicesof largerlawfirms.

Anindependentlawyer workingbyhim/herself canhandle40litigationcases eachyear.

If an independent lawyer employs two legal aides, he/she can instead handle 75 cases/year.Thecost of employing one legal aide is $100K/year.

As clarification: The only two possibilities are that the lawyer works alone, or employs two legalaides.

Theopportunitycost of timeofalawyeris$400K/year.

There are very large numbers of people able and willing to work as independent lawyers.Thedemand curve for litigation services is

Q=32 - 1.5P,

wherequantity(Q) is in millions ofcases, and price(P) is thousandsof $.

Question1

Whatdo you expect theprice of litigating acase to be?Selectnearest answer.

Question2

Howmanyindependentlawyers doyou expectto see? Select nearestanswer.

Question3

What income do you expect to see independent lawyers earning (net of any expendituresincurredon legal aides, if applicable)?Select nearest answer.

Questions4-6

A Legal Tech firm launches a product that allows a lawyer who employs two legal aides tohandle 200 cases (instead of the 75 above).The Legal Tech firm charges $200K/year for thisproduct.All other informationgivenabove remains unchanged.

Question4

Whatdo you expect theprice of litigating acase to be?Selectnearest answer.

Question5

Howmanyindependentlawyers doyou expectto see? Select nearestanswer.

Question6

What income do you expect to see independent lawyers earning (net of any expendituresincurredon legal aidesand/orLegal Tech, if applicable)?Selectnearest answer.

Question7-10

In this set of questions, I ask you to consider the market for flights from Seattle to Fresno(California). Alaska Airlines have a monopoly on this route. There are two types of travelers.Leisure travelers derive a value of $200 from flying this route if the itinerary includes a Saturdaynight stay, and $175 if the itinerary doesn't include a Saturday night stay. Business travelersderive a value of $100from flying this routeif the itinerary includesa Saturdaynight stay,and

$450 if the itinerary doesn't include a Saturday night stay.Therearetwiceasmanyleisuretravelers asbusinesstravelers.

Assume that Alaska is able to prevent travelers from using just one leg of a return itineraryand/or purchasingmultiple overlapping itineraries.

As clarification: All valuations are for return itineraries, and the questions that follow ask forreturn prices.

Question7

Whatprice doyou suggest thatAlaska charge foritineraries thatinclude a Saturdaynight stay?

Question8

What price do you suggest that Alaska charge for itineraries that don't include a Saturday nightstay?

Question9

TRUE/FALSE/UNCERTAIN:Alaska would be able to further raise its profits from the route if itcould reliably identify which passengers are leisure travelers.

Question10

TRUE/FALSE/UNCERTAIN:Alaska's profits would fall if new government legislation guaranteestheright of passengers to purchase a return itinerary and use just one leg.

Questions11and12

Youareworking asa consultantadvisinga firmthat produceshigh-endsneakers.

The cost of producing these high-end sneakers is $100/pair. In the metropolitan area you areanalyzing, there are 5,000 people who value the sneakers at $250/pair, and a further 10,000whovalue thesneakers at$150/pair.The remainderof thepopulation valuesthe sneakers at

$0.

The firm has two retail locations: One in the center of the metropolitan area, and one 50 milesawayin an outlet mall.

The people who value the sneakers at $150/pair have lots of free time. For them, the total costof visiting of the outlet mall is $20 (composed of the direct transport cost and the time "cost" ofvisiting themall).

The people who value the sneakers at $250/pair have little free time. For them, the total costvisiting of the outlet mall is $90 (again, composed of the direct transport cost and the time"cost" of visiting the mall).

Nocostsareassociatedwithvisitingthecentrallocation,whichisconvenientforbothgroups.

Question11

Whatpriceshould thefirmcharge forsneakers soldin thecentral location?

Question12

Whatpriceshould thefirm chargefor sneakerssold atthe outletmall?

Question13

Youarepurchasinga used laptop.YoufindanappropriatemodelonCraigslist,with thepricelisted simply as"best offer."

Both your and the seller's valuation of the laptop depend on its condition. The seller knows thelaptop'scondition, but you don't.

Based on your knowledge of laptops, you assess the likelihood of different conditions andassociatedvaluations(bothyours and theseller's) asbeing givenby thefollowingtable:

Laptopcondition	Seller'svaluation	Yourvaluation	Probability
Poor	$400	$700	1/3
Reasonable	$600	$900	1/3
Excellent	$800	$1,100	1/3

Whatamountshould youoffertopayforthelaptop?