- The equation for price as a function of quantity can be estimated based on the graphical representation of the given data as indicated below.
From the above, it is apparent that P= 1000-20Q
Further, TR or total revenue = P*Q = (1000-20Q)Q = 1000Q – 20Q2
Also, MR = dTR/dQ = 1000 – 40Q
Further, the equation of TC in terms of quantity can be estimated from the best fit curve for the provided data as indicated below.
Hence, TC = Q3 – 3Q2 + 536Q + 1500
ATC = TC/Q
Hence, ATC = Q2 – 3Q + 536 + 1500/Q
Also, VC = TC – FC = Q3 – 3Q2 + 536Q
AVC = VC/Q = Q2 – 3Q + 536
MC = dTC/dQ = 3Q2 -6Q + 536
- The profit maximising price and quantity can be indicated using the following table.
It is apparent from the above table that the profit is maximised when price per unit is $ 840 and the quantity sold is 8 units.
- It is apparent that the total profit earned in case the price and quantity are set at values obtained from part (b) would come out at $ 612.
- Lerner Index = (P-MC)/P
It is apparent that P = $ 840, MC = $ 642
Hence, Lerner Index = (840-642)/840 = 0.235 or 23.5%
Considering that the value of the Lerner index does not exceed 0.5, hence the given market would not be monopolised market and would have imperfect competition.
It is in the interest of the dentists to control the licensing system as this system can provide a potent entry barrier against the increase of labour supply by controlling the number of licenses given so that thee abnormal profits of the dentists can be retained in the long run. In the absence of this entry barrier, the labour supply may increase leading to lower profits. Hence, it enables the licensed dentists to retain their market power.
There were complaints and investigation as the unlicensed dentists and other service providers eroded the market power of the licensed dentists by providing a cheap alternative which adversely impacted the profits of the licensed dentists as it impacted the price charged by them.
The key difference political rivalry and business rivalry is the nature of the game. The candidate selection is not a continuous process and is carried out after a number of years. As a result, the game between the political opponents is essentially one time only and hence each candidate has the incentive to indulge in negative ad campaign as not adhering to the same may adversely impact the chances of winning in the current elections.
On the contrary, companies do not engage in negative ad campaign as if one company does so the other company would also respond with the same. As a result, the reputation of both the businesses would suffer and hence the sales would decline as the customers tend to make the decision of buying or not buying on a repeated basis unlike elections. Thus, both the companies would tend to end up as losers and thus the corporate behaviour tends to significantly differ.
- If Papa Johns chooses $ 1 million, then Pizza hut would choose $ 2 million>$ 1 million >$ 3 million
- If Papa Johns chooses $2 million, then Pizza hut would choose $ 2 million>$ 1 million >$ 3 million
- If Papa Johns chooses $3 million, then Pizza hut would choose $ 1 million>$ 2 million >$ 3 million
Hence, from the above it is apparent that Pizza hut would eliminate the $ 3 million option.
If Pizza Hut chooses $1 million, then Papa Johns would choose $2 million>$1 million >$ 3 million
If Pizza Hut chooses $2 million, then Papa Johns would choose $1 million>$2 million >$ 3 million
If Pizza Hut chooses $3 million, then Papa Johns would choose $2 million>$1 million >$ 3 million
Hence, from the above it is apparent that Papa Johns would eliminate the $3 million option.
- Now $ 3 million option is excluded for both the parties.
Irrespective of choice made by Papa Johns, Pizza Hut would always choose $ 2 million so to maximise the payoffs. As a result, a second round exclusion would be made by Pizza Hut there eliminating $ 1 million option.
With regards to Papa Johns, no second round elimination would be there, as the maximum payoff option would vary as per the choice exhibited by Pizza Hut.
- It is apparent that Pizza Hut would choose only $ 2 million option and Papa Johns can maximise the payoff by choose $ 1 million option. Hence, in case of simultaneous advertising decision, Papa Johns would go with $ 1 million option while Pizza Hut would go with a $ 2 million option.