refer to attachment for questions
Use the graph provided below to answer parts (a)-(e). Marginal Cost Average Total Cost Average Variable Cost Price, Cost ($) 108 100 68 55 35 30 Demand 0 10 2131 44 57 Quantity Marginal Revenue BigMed, a prot-maximizing rm, has a patent on a medical device, making it the only producer of that device. The graph above shows BigMed's demand, marginal revenue, average total cost, average variable cost, and marginal cost curves' BigMed, a prot-maximizing rm, has a patent on a medical device, making it the only producer of that device. The graph above shows BigMed's demand, marginal revenue, average total cost, average variable cost, and marginal cost curves. (a) Calculate BigMed's total revenue if the rm produces the allocatively efcient quantity. Show your work. (b) Starting at a price of $100, if BigMed were to increase the price by 2%, will the quantity demanded decrease by more than 2%, by less than 2%, or by exactly 2%? Explain. (c) At a quantity of 10 units, is BigMed's marginal product increasing, decreasing, or constant? Explain. (d) Identify the quantity that maximizes BigMed's prot. Explain. (e) At the quantity identied in part (d), does BigMed earn a positive economic prot, a negative economic prot, or zero economic prot? Explain. Assume that BigMed's patent expires. Tauem, a company with the capability to produce the same medical device as BigMed, intends to enter the market and charge a lower price than BigMed for the medical device. BigMed is considering whether to maintain its price or to lower its price to match Tauem's price. Tauem is considering whether to advertise its entry into the market. The matrix below shows the payoffs for each combination of strategies, and both players (BigMed and Tauem) have complete information. The rst entry in each cell represents BigMed's payoff and the second entry represents Tauem's payoff. Each player independently and simultaneously chooses its strategy. Use the matrix provided below to answer parts (fJ-(h). Advertise Maintain Price $300, $850 Lower Price $420, $350 Not Advertise $200, $640 $100. $250 (f) Does Tauem have a dominant strategy? Explain using numbers from the payoff matrix. (9) Identify the Nash equilibrium. Explain why this is a Nash equilibrium using information from the payoff matrix. (h) Suppose Tauem makes a credible commitment to BigMed that if BigMed maintains its price, then Tauem will pay BigMed $200. Will this offer result in a Nash equilibrium with different strategies from those identied in part (9) 7 Explain using numbers from the payoff matrix
