UW Economics Worksheet


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2. (20 points) The manufacturer of high-quality flatbed scanners is trying to decide what price to
set for its product. The costs of production and the demand for the product are assumed to be as
TC = 500,000 + 0.85Q +0.015Q2
Q = 14,166 – 16.6P
Suppose the manufacturer is a monopolist. Determine the short-run profit-maximizing price and
quantity combination
3. (30 points) Two firms produce luxury sheepskin auto seat covers: Western Where and B.B.B.
Sheep. Suppose both firms have zero marginal cost.
MC1 = MC2 = 0
The market demand for these seat covers is represented by the inverse demand function
P = 420 – 70
where Q = (1 + Q2 is the total output.
a. (15 points) If the two firms collude to act as a joint monopolist (i.e., both firms act to maximize
joint profit) and agree to share the profits equally, what will be the profit-maximizing choice of
output for each firm? What is the market price P?
b. (15 points) If both firms behave as Cournot oligopolists (i.e., each firm acts to maximize its
profit, taking its rival’s output as given), what will be the equilibrium quantity select by each firm?
What is the total output Q and the market price P?

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