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Assume A=100 and b=2. Find the monopolist’s optimal price and quantity.

Identify all dominated strategies.

Identify all dominated strategies.

Use comparative statics to determine if the monopolist profits will increase or decrease in b. 

The following description will be used in questions 2a through 2e and in bonus II.   A firm produces x according to the cost function c(x)=20x+25. The demand for x is represented by the inverse price demand curve p=A-bx, where p is the price faced by consumers and A and b are positive numbers.

What is the Expected Value of Perfect information on the payoff of the second investment?

The following description will be used in questions 2a through 2e and in bonus II.   A firm produces x according to the cost function c(x)=20x+25. The demand for x is represented by the inverse price demand curve p=A-bx, where p is the price faced by consumers and A and b are positive numbers.

Assume A=100 and b=2. Find the monopolist’s optimal price and quantity.

Now assume that instead of a monopoly x is produced in a perfectly competitive market. Write the profit maximization problem for a competitive firm in this market. Explain how this problem differs from 2a. 

Why is it important to study production functions such as f1 and f2?