#### Description of this paper

Description

Question

Can you please answer these questions and say WHY you chose this answer. I would like to have an explanation

1. The &quot;On the Road&quot; bicycle manufacturing company sold 500 bicycles last

year. Their fixed costs were \$10 per unit, and their variable costs were \$15

per unit. If each bike sells for \$100, most likely the company had a:

Total profit of \$37,000

Total profit of \$50,000

Total loss of \$37,000

Total loss of \$50,000

The company broke even

2. Jessica Simpson has decided to open a small fast food place that specializes in

Buffalo wings. To do so she must resign from her current full time position which

pays her \$40,000/year and take over a small store-front building which she already

owns but currently rents to her brother, Homer, for \$6,000/year. Her annual

expenses at the restaurant will be \$50,000 for the food and \$2,000 for gas and

electricity. What are her explicit costs?

\$40,000

\$46,000

\$50,000

\$52,000

\$98,000

3. Economies of scale exist when the long run average cost curve:

Falls

Rises

Remains constant

Becomes vertical

Does not exist

Figure 3-4 Two Firm Payoff Matrix

Huggies Diapers

High Price Low Price

\$60 Million \$20 Million

High PriceA

B

\$60 Million \$10 Million

Pampers Diapers

\$10 Million \$20 Million

Low Price C

D

\$20 Million \$20 Million

4. Using Figure 3-4 above, if the two firms were free to collude, they would select

quadrant ___ but if they are not allowed to collude, they will most likely end up in

D, A

C, B

A, D

A, A

Figure 3-4 Two Firm Payoff Matrix

Huggies Diapers

High Price Low Price

\$60 Million \$20 Million

High PriceA

B

\$60 Million \$10 Million

Pampers Diapers

\$10 Million \$20 Million

Low Price C

D

\$20 Million \$20 Million

5. Using Figure 3-4 shown above, which of the following statements are

1

2

3

4

5

correct?

If both Huggies and Pampers charge a high price, each will earn \$60 million in

profits.

If Huggies charges a low price and Pampers charges a high price, their

combined profits will be \$30 million.

If both firms charge a low price, each with earn \$20 million in profits.

The Nash equilibrium in this case will be in cell D (southeast quadrant).

The firms have an incentive to collude and agree to both charge a high price.

Only statements 1 and 2 are correct

Only statement 4 is correct

Only statement 3 and 5 are correct

None of the statements are correct

All of the statements are correct

Paper#9209617 | Written in 27-Jul-2016

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