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P7.

a) mr = 10-2x and mr = 4
10-2x = 4
X=3
So, the firms output level = 3
b) tr = 21, x = 3
p = 21 / 3 = 7
So, the firms price = $7
c) Short-run average total costs stands at its minimum point, thats why it
equals to mc
mc = mr = 4
So, short-run average total costs = $4
d) Total cost = average total costs * output level
Total cost = $4 * 3 = $12
e) As it was mentioned before, mc = mr = 4 according to profit maximization
f) Short-run profit = total revenue total cost
Short-run profit = $21 - $12 = $9
P8.
a) The profit-maximizing output for Calypso (where mr = mc) equals 2 cubic
feet a day. The price equals 6 cents per a cubic foot. Producer surplus = 8
cents, consumer surplus = 4 cents, deadweight loss = 4 cents.
b) If Calypso is regulated to make zero economic profit, they produce the
output level, where price = average total cost (D curve and ATC curve
intersection). Calypso produces 3 cubic feet a day at 4 cents per a cubic
foot. Producer surplus = 6 cents, consumer surplus = 4 cents, deadweight
loss = 1 cent.
c) Calypso produces the quantity where price = marginal cost (D curve and
MC curve intersection). Calypso produces 4 cubic feet a day at 2 cents per
a cubic foot. Producer surplus = 0, consumer surplus = 16 cents,
deadweight loss = 0.

P9.
a)
b) The Nash equilibrium for both AAA and BBB is to expand production. If BBB
limits its production, AAA generates larger profit if AAA will expand its
production. If BBB expands its production, AAA generates larger profit if AAA
will expand its production. It also relates to BBB in the same way.
c) AAA and BBB reach cooperative equilibrium to limit production if they use
trigger strategy.