QUESTION

ECON 2103: Problem Set 10

Problem # 1: (10 Points)Suppose Timber Pond and Jay B are the only two music labels (i.e. companies) around. Each ofthem currently limits the number of new artists per year to 10. Each of their artist sells 200 songs

at $10/song.

Each label is capable of signing 20 artists per year. If one label increases the number of artists to

20 and the other doesnâ€™t; the price of song drops to $3.50/song and each artist sells 300 songs.

If both labels increase the number of artists to 20, the price per song drops to $2.00 and each

artist sells 400 songs.

Based on this information, answer the following questions:

a. First of all, create a 2x2 matrix showing the options (strategies) available to each label. (Hint:

Look at the table below)

b. Calculate their revenues (payoffs) under each situation

c. If this game is played only ONCE, what will be the outcome? What will be the price of song?

d. If this game is repeated every year for long enough time in the future, what will be the

outcome? What will be the price of a song?

JAY B

TIMBER POND Problem # 2: (10 Points) For a certain small town, the table shows the demand schedule for water. Assume the

marginal cost of supplying water is constant at $4 per bottle for a firm in all the problems.

Price

$9

$8

$7

$6

$5

$4

$3

$2 Quantity

(bottles)

200

400

600

800

1000

1200

1400

1600 Total Revenue Total Cost Profit ECON 2103: Problem Set 10 Prof. Jog a) First of all, fill in the remaining columns.

b) Suppose there are many identical firms supplying water such that each is a small fraction

of the market. Calculate the quantity supplied, price charged and profits earned.

c) Suppose now there are only two identical firms. They compete in price with each other.

i.e. the firm charging a lower price gets all the customers. What will be the outcome in

terms of quantity, price and profit in this case?

d) Suppose now the two firms compete in quantity. They decide to cooperate with each

other and act as if they were a monopolist. What will be the quantity supplied, price

charged and profits earned by each firm?

Problem # 1: (10 Points)Suppose Timber Pond and Jay B are the only two music labels (i.e. companies) around. Each ofthem currently limits the number of new artists per year to 10. Each of their artist sells 200 songs

at $10/song.

Each label is capable of signing 20 artists per year. If one label increases the number of artists to

20 and the other doesnâ€™t; the price of song drops to $3.50/song and each artist sells 300 songs.

If both labels increase the number of artists to 20, the price per song drops to $2.00 and each

artist sells 400 songs.

Based on this information, answer the following questions:

a. First of all, create a 2x2 matrix showing the options (strategies) available to each label. (Hint:

Look at the table below)

b. Calculate their revenues (payoffs) under each situation

c. If this game is played only ONCE, what will be the outcome? What will be the price of song?

d. If this game is repeated every year for long enough time in the future, what will be the

outcome? What will be the price of a song?

JAY B

TIMBER POND Problem # 2: (10 Points) For a certain small town, the table shows the demand schedule for water. Assume the

marginal cost of supplying water is constant at $4 per bottle for a firm in all the problems.

Price

$9

$8

$7

$6

$5

$4

$3

$2 Quantity

(bottles)

200

400

600

800

1000

1200

1400

1600 Total Revenue Total Cost Profit ECON 2103: Problem Set 10 Prof. Jog a) First of all, fill in the remaining columns.

b) Suppose there are many identical firms supplying water such that each is a small fraction

of the market. Calculate the quantity supplied, price charged and profits earned.

c) Suppose now there are only two identical firms. They compete in price with each other.

i.e. the firm charging a lower price gets all the customers. What will be the outcome in

terms of quantity, price and profit in this case?

d) Suppose now the two firms compete in quantity. They decide to cooperate with each

other and act as if they were a monopolist. What will be the quantity supplied, price

charged and profits earned by each firm?

TUTORIAL PREVIEW

Timber Pond and Jay B are the only two music labels (i.e. companies) around. Each ofthem currently

Dated: 6th Dec'17 12:49 PM

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JayB at artists Timberpond * 10 $10,500JayB: (200 * revenue $30,500Both have 400 each at $2 revenue: * = $8,000 (400 10 $8,000Total = once, be artists, $10 The