Assume the following cost data are for a purely competitive producer. Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost 0 $0.00 $0.00 $0.00 na 1 $60.00 $45.00 $105.00 $45 2 30.00 42.50 72.50 40 3 20.00 40.00 60.00 35 4 15.00 37.50 52.50 30 5 12.00 37.00 49.00 35 6 10.00 37.50 47.50 40 7 8.57 38.57 47.14 45 8 7.50 40.63 48.13 55 9 6.67 43.33 50.00 65 10 6.00 46.50 52.50 75 Answer the questions in the first column in the table below for each of the prices listed at the top of each of the three columns, (a), (b), and (c). Instructions: Round your answers to two decimal places. Select “Not applicable” and enter “0” for output if the firm does not produce. (a) At a product price of $56 (b) At a product price of $41 (c) At a product price of $32 Will this firm produce in the short run? If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output? output = units per firm output = units per firm output = units per firm What economic profit or loss will the firm realize per unit of output? per unit = $ per unit = $ = $ d. In the table below, complete the short-run supply schedule for the firm (columns 1 and 2) and indicate the profit or loss incurred at each output (column 3).

1. Suppose the number of firms you compete with has recently increased. You estimated that as a result of the increased competition, the demand elasticity has increased from 2 to 3, i.e., you face more elastic demand. You are currently charging $10 for your product. If demand elasticity is -3, you should charge [x].

2.  Explain the difference in the profit realized under the two situations (the price in each market or in the two markets combined.)

Make sure you include the profit with and without price discrimination in your answer.

3.  Time Warner could offer the History Channel (H) and Showtime (S) individually or as a bundle of both. Suppose the reservation prices of customers 1 and 2 (the highest prices they are willing to pay) are presented in the boxes below.

The cost to Time Warner is $1 per customer for licensing fees.



Showtime        History Chanel

Customer 1                 9                                   2

Customer 2                 3                                   8

3.1 Should Time Warner bundle or sell separately?  Your answer needs to include the unbundled and bundled profits

3.2 Suppose Time Warner could sell Showtime for $9, and History channel for $8, while making Showtime-History bundle available for $13. Should it use mixed bundling. i.e., sells products both separately and as a bundle?

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