Question

The Table below shows the total demand for cable TV subscriptions for a monopoly. Assume that the monopolist incurs an annual fixed cost of $100,000 and that the marginal cost of providing an additional subscription is always $100.

Quantity	Price (per year)
0	$400
2,000	$350
4,000	$300
6,000	$250
8,000	$200
10,000	$150
12,000	$100
14,000	$50
16,000	$0

    

1. What is the profit maximising level of quantity and price? What is the profit at this level of output? Explain your answers using the concept of marginal revenue and marginal cost.                                                                                                                 (4 marks)
2. The following table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B).

		B
		Right	Left
A	Up	(2, 2)	(3, 3)
	Down	(1, 1)	(4, 0)

Critically analyse the following (remember to justify your answers):

1. Is Up-Right a Nash equilibrium?                                                       (1 mark)
2. Is Up-Left a Nash equilibrium?                                                          (1 mark)
3. Is Down-Right a Nash equilibrium?                                                   (1 mark)
4. Is Down-Left a Nash equilibrium?                                                     (1 mark)

Answer 1

question (6) MR mc quantity Price TR $400 O $100 2,000 350 700,000 350 100 4,000 300 12,00,000 250 100 6,000 250 15,00,000 150 100 * 8,000 200 16,00,000 50 100 10,000 150 1500,000 - 50 100 12,000 100 12,00,000 - 15 14,000 50 7,00,000 -250 100 16,000 o 100 foo fit maximizing Condition for menolarist MR , Mc = MR > 100 ceads To firms To Sell 9 = 6000 units with P = 250 TR= Pog 15,00,000 TC = MC.9 + 100,000 100 (6000)+1,00,000 600,000 + 1,09,000

B If P-2 chooses last Then P-1 will choose Down, Profit = TR-TC = 15,00,000- 7,00,000 8,00,000 firm Produce. The output Corres Ponceing To mRy mc. in order to maximizes it's profit. No one Firm want to produce where addition unit cost of froduction (MC) > addition & revenue from I Unit Sold (b) Right Left up 2,2 3,3 NE is a state of action where no one layer wants To oni letocily deviate given The action of other players. (i) (up- Right ) is NE? If for chooses up. Then P-2 will choose Left, and Right A down 400 Strategy of other UP So both payes has profitable deviation for not choosing Right up, if f-2 Choose freight =) Not. NE. up

0 (10) cef- Left is a NE? If Pol, chooses up, Then P-2 will choose Left and If f2 chooses Left, Then fI will choose down. Profitable deviation available for Pi = (UP- Left , is Not N.E. ili (Down- Right) is a NE? If fi , chooses Down, then f-2 will choose Right, If f2, chooses Right, then fi will Choose up profitable deviation available for Rs >> Not NE and (iv) Down - Left a NE? Chooses Down, Then fz will choose Right, and If f-2 chooses Left, Then PI will choose Profitable deviation avilable for both Down
sorry for inconvenience please take player-1 as player-A and player-2 as player-B !