APCollegeBoardTest BookletUnit 4 Problem SetAssume that EarthScience's patent expires. GeoSci, a company with the capability to produce the same technology asEarthScience, intends to enter the market and charge a lower price than EarthScience for the technology. EarthScience isconsidering whether to maintain its price or to lower its price to match GeoSci's price. GeoSci is considering whether ornot to advertise its entry into the market.The matrix below shows the payoffs for each combination of strategies, and both players (EarthScience and GeoSci) havecomplete information. The first entry in each cell represents EarthScience's payoff and the second entry representsGeoSci's payoff. Each player independently and simultaneously chooses its strategy. Use the matrix provided below toanswer parts (f)-(h).GeoSciAdvertiseNot AdvertiseMaintain Price$520,$460$400, $250EarthScienceLower Price$450, $350$320, $650(f) Does EarthScience have a dominant strategy? Explain using numbers from the payoff matrix.(g) Identify the Nash equilibrium. Explain why this is a Nash equilibrium using information from the payoff matrix.(h) Suppose GeoSci makes a credible commitment to EarthScience that if EarthScience lowers its price, then GeoSci willpay EarthScience $150. Will this offer result in a Nash equilibrium with different strategies from those identified in part(g) ? Explain using numbers from the payoff matrix.40.Respond to all parts of the question.A Please respond on separate paper, following directions from your teacher.AP MicroeconomicsPage 39 of 42 APCollegeBoardTest BookletUnit 4 Problem SetInclude correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram musthave all axes and curves clearly labeled and must show directional changes. If the question prompts you to"Calculate," you must show how you arrived at your final answer.Use the graph provided below to answer parts (a)-(e).Marginal CostAverage TotalCostAverage VariableCost302519171110Demand0 4 9 15 20 2838 43QuantityMarginalRevenueEarthScience, a profit-maximizing firm, has a patent on a carbon capture technology, making it the only producer of thattechnology. The graph above shows EarthScience's demand, marginal revenue, average total cost, average variable cost,and marginal cost curves.(a) Calculate EarthScience's total revenuethe firm produces the allocatively efficient quantity. Show your work.(b) Starting at a price of $30, if EarthScience were to increase the price by 6%, will the quantity demanded decrease bymore than 6%, by less than 6%, or by exactly 6%? Explain.(c) At a quantity of 20 units, is EarthScience's marginal product increasing, decreasing, or constant? Explain.(d) Identify the quantity that maximizes EarthScience's profit. Explain.(e) At the quantity identified in part (d), does EarthScience earn a positive economic profit, a negative economic profit, orzero economic profit? Explain.Page 38 of 42AP MicroeconomicsCE & 8 Price, Cost ($)

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Unit 4 Problem Set Assume that EarthScience's patent expires. GeoSci, a company with the capability to produce the same technology as EarthScience, intends to enter the market and charge a lower price than EarthScience for the technology. EarthScience is considering whether to maintain its price or to lower its price to match GeoSci's price. GeoSci is considering whether or not to advertise its entry into the market. The matrix below shows the payoffs for each combination of strategies, and both players (EarthScience and GeoSci) have complete information. The first entry in each cell represents EarthScience's payoff and the second entry represents Geości's payoff. Each player independently and simultaneously chooses its strategy. Use the matrix provided below to answer parts (f)-(h). GeoSci Advertise Not Advertise Maintain Price $520,$460 $400, $250 EarthScience Lower Price $450, $350 $320, $650 (1) Does EarthScience have a dominant strategy? Explain using numbers from the payoff matrix. (g) Identify the Nash equilibrium. Explain why this is a Nash equilibrium using information from the payoff matrix. (h) Suppose GeoSci makes a credible commitment to EarthScience that if EarthScience lowers its price, then GeoSci will pay EarthScience $150. Will this offer result in a Nash equilibrium with different strategies from those identified in part (g) ? Explain using numbers from the payoff matrix.

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC