Question

i written answers and/or hand-drawn graphs will not be graded. Any answer without clear a Cpy to chakralwuwm.eou. Han and precise explanation will not receive any credit. Good Luck! estion 1. [50 points] Suppose Wilwaukee Telecom offers its users the option of paying Que cither (a) $2.00 per minute for telephone service or (b) a $125 flat charge for a year of unlimited toll-free calls. Consider a customer with an annual demand for telephone service of P 11-0.1Q, where P is the price per minute and Q is the number of minutes of calls made per year. How many minutes of calls would this customer make under plan (a)? How many minutes of calls would he or she make under plan (b)? Calculate the consumer surplus for each of the plans (a) and (b). Question 2. Libertyville has two optometrists. Dr. Smith (S) and Dr. Jones (S). Eacih optometrist can choose to advertise his service or not. The net revenue to each optometrist, in thousands of dollars, is listed on the payoff matrix below. Answer questions a through 120 points] Does Dr. Smith have a dominant strategy? 120 points] Does Dr. Jones have a dominant strategy? [10 points) Does a Nash equilibrium exist for this game? a. b. c. Dr. Smith (S) Advertise advertise Advertise S $385 S: $386 $375 $415 Don'tS $425 S $405 advertise $365 $395 Dr. Jones U) 13 FS 4 2

Answer 1

1) price=2 then quantity demand=(11-2)/0.1=90minutes under plan A

Under plan B price per minute=0 then quantity demanded=110minute

B) Consumer surplus under plan A=1/2×90×9=405

Consumer surplus under plan B=1/2×11×110 -125= 605-125=480