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GenericRus produces a commodity in a perfectly competitive market.

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Question 1: GenericRus produces a commodity in a perfectly competitive market. In the short;run, it has fixed costs equal to $1,200, and its AVC is as follows;Q;0;1;2;3;4;5;6;7;8;AVC;---$215;$180;$160;$130;$160;$180;$200;$235;A. How many units of output would the firm produce in the short run if the market price were;P=$270? Explain. (Be brief and precise, no more than 5 lines.);B. How many units of output would the firm produce in the short run if the market price were;P=$100? Explain. (Be brief and precise, no more than 5 lines.);C. What will happen to the supply curve of this firm in the following cases? (a) The government;imposes a tax on all firms in the industry in which GenericRus operates, (b) The price of an input;used by the firm in the production process decreases. Draw a picture in each case.;Question 2: American Linen is a firm that has multiple salespersons. In 2008, it changed the;compensation method for its sales force, moving from a system of fixed wages to one of base wage;plus commission. As a result, American Linen's total revenue from sales increased by almost 30%;and the average compensation received by a salesperson also increased substantially. The firm is;currently contemplating the introduction of comparative performance evaluation in their;compensation. One alternative is to determine the variable part of each salesperson's;compensation by comparing his or her performance to the average performance of the firm's sales;force. The second alternative is similar, except that it uses the average performance of the sales;force at rival firms.;A. Explain why the change from a system of fixed wages to one of base wage plus commission can;lead to an increase in sales revenue. (Be brief and precise: no more than 5-8 lines.);B. Explain how the introduction of comparative evaluation can reduce the firm's cost of;compensating its sales force. Which alternative would you favor? Why? (Be brief and precise: no;more than 8 lines.);Question 3: Consider the following sequential game between two players, A and B. First, A;chooses between trust B or do not trust B. If A decides not to trust B the game ends and each;player obtains a payoff of 0. If A decides to trust B, then B chooses between abuse A's trust or;treat A fairly. If B abuses As trust, then A's payoff is -1 and B's payoff is 2. If B treats A fairly;then each player obtains a payoff of 1.;A. Draw the tree of the game and use backward induction to find a prediction.;B. What would be your prediction if this game is played twice? What if it is played an indefinite;number of times? Explain.;C. What would be your prediction if B played the game an indefinite number of times, but;against a different player A in each period?;D. Provide a real-world business application for this game. Be brief (no more than five lines).;Question 4: There are two existing firms in the market for computer chips, firm A and firm B.;Firm A can adopt a new technology that reduces the production costs for the chip and is;considering whether to adopt the innovation or not. Adopting the innovation costs C dollars (think;of this as a set-up cost), but it increases the profits that the firm obtains from the chips (which;are produced at a lower cost). However, once the new technology is adopted by firm A, then firm B;can adopt it with a smaller set-up cost of C/2 dollars. If firm A does not innovate, then the game;ends and each firms earns $5. If firm A decides to adopt the innovation and firm B decides not to;adopt it, A earns $20 (minus the cost of the innovation) while B earns $0. If firm A adopts the;innovation and firm B adopts it as well, each firm earns $15 minus the cost of the innovation.;(Assume that players are rational and seek to maximize their own payoffs.);A. For what values of C will firm B adopt the innovation if firm A adopts it? Explain.;B. For what values of C will firm A adopt the innovation? What is your prediction in this;case? Explain.;C. What is your prediction if C = $15? Explain.

 

Paper#28615 | Written in 18-Jul-2015

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