Two firms compete in a homogeneous product market where the inverse demand function is P = 20 -5Q (quantity is measured in millions). Firm 1 has been in business for one year, while Firm 2 just recently entered the market. Each firm has a legal obligation to pay one year’s rent of $1 million regardless of its production decision. Firm 1’s marginal cost is $2, and Firm 2’s marginal cost is $10. The current market price is $15 and was set optimally last year when Firm 1 was the only firm in the market. At present, each firm has a 50 percent share of the market.

a. Based on the information above, what is the likely reason that Firm 1’s marginal cost is lower than Firm 2’s marginal cost?

• Second-mover advantage

• Direct network externality

• Learning curve effects

• Limit pricing

b. Determine the current profits of the two firms.

Instruction: Enter all responses rounded to two decimal places.

Firm 1's profits: $  million

Firm 2's profits: $  million


c. What would each firm’s current profits be if Firm 1 reduced its price to $10 while Firm 2 continued to charge $15?

Instruction: Enter all responses to two decimal places.

Firm 1's profits: $  million

Firm 2's profits: $  million


d. Suppose that, by cutting its price to $10, Firm 1 is able to drive Firm 2 completely out of the market. After Firm 2 exits the market, does Firm 1 have an incentive to raise its price?

• No

• Yes

e. Is Firm 1 engaging in predatory pricing when it cuts its price from $15 to $10?

• No

• Yes

A paper described a survey of 501 undergraduate students at a state university in the southwestern region of the United States. Each student in the sample was classified according to class standing (freshman, sophomore, junior, or senior) and body art category (body piercings only, tattoos only, both tattoos and body piercings, no body art).

Use the data in the accompanying table to determine if there is evidence of an association between class standing and response to the body art question. Assume that it is reasonable to regard the sample of students as representative of the students at this university. Use

α = 0.01.

Calculate the test statistic. (Round your answer to two decimal places.)

χ² =

What is the P-value for the test? (Round your answer to three decimal places.)

P-value =

A soft drink company printed messages inside its? 20-ounce bottles as part of a promotion. Some of the caps said? “Please try? again!” while others? said, “”You’re a? winner!” The company claims that 1 in 6 bottles have winning caps. Seven friends each buy a bottle at a grocery store. The clerk is surprised when three of them win a prize. Is this group of friends just lucky or is the? company’s claim? inaccurate? Use simulation to estimate the probability of at least three of seven friends winning a prize.

Step? #1: Identify the component to be repeated.

A.

Winning a prize

B.

Buying one? 20-oz bottle

C.

Buying seven? 20-oz bottles

D.

The number of friends? (out of? 7) that receive? “You’re a? winner”

E.

The number of friends? (out of? 7) that receive? “Please try? again”

Step? #2: Explain how you could model the? component’s outcome.

A.

Let? 1-3 =? “You’re a? winner” and Let? 4-6 =? “Please try? again.”

B.

Let? 2-6 =? “You’re a? winner” and Let 1? = “Please try? again.”

C.

Let 0? = “Please try? again” and Let 1? = “You’re a? winner”

D.

Let 1? = “You’re a? winner” and Let? 2-6 =? “Please try? again.”

E.

Let 0? = “You’re a? winner” and Let 1? = “Please try? again”

Step? #3: State the response variable clearly.

A.

Buying one? 20-oz bottle

B.

Buying seven? 20-oz bottles

C.

Receiving? “Please Try? Again”

D.

Receiving? “You’re a? winner”

E.

The number of friends? (out of? 7) that receive? “You’re a? winner”

Step? #4: Explain how to combine the components into a trial to model the response variable.

A.

Use random.org to generate 7 random numbers between 1 and 6. Count and record the number of friends that receive? “Please try? again.”

B.

Use random.org to generate randomly selected numbers between 1 and 6 until three friends receive? “Your’re a? winner.”

C.

Use random.org to generate 7 random numbers between 1 and 6. Count and record the number of friends that receive? “You’re a? winner.”

D.

Use random.org to generate randomly selected numbers between 1 and 6 until three friends receive? “Please try? again.”

Step? #5: Run Several Trials

Use these random numbers provided listed below to carry out the simulation.

Trial? #1: ? 2 4 1 3 3 3 3

Trial? #2: ? 2 3 3 4 6 2 2

Trial? #3: ? 4 6 1 6 5 3 5

Trial? #4: ? 5 3 6 1 5 5 3

Trial? #5: ? 6 3 2 2 6 6 4

Trial? #6: ? 5 6 3 6 5 1 4

Trial? #7: ? 1 2 3 2 3 1 3

Trial? #8: ? 3 6 6 1 5 4 2

Trial? #9: ? 2 3 4 4 6 6 4

Trial? #10: ? 4 5 4 2 3 6 3

Trial? #11: ? 2 3 1 5 3 2 2

Trial? #12: ? 6 4 2 6 6 4 3

Trial? #13: ? 5 3 2 4 1 2 3

Trial? #14: ? 5 5 5 4 3 5 1

Trial? #15: ? 2 4 6 6 1 1 6

Trial? #16: ? 5 2 2 5 3 2 2

Trial? #17: ? 4 1 6 5 1 2 5

Trial? #18: ? 6 5 3 1 6 5 3

Trial? #19: ? 2 2 1 2 6 5 6

Trial? #20: ? 6 1 4 5 3 4 1

Step? #6: Collect and summarize the results of all trials.

Based on your? simulation, what is the probability of at least three of seven friends winning a? prize? Enter your final answer as a decimal rounded to FOUR decimal places.

0.12860.1286

Step? #7: State your conclusion

A.

The? company’s claim is inaccurate. The probability of at least three of seven friends winning a prize is so tiny that we have reason to question the? company’s claim.

B.

This group of friends is just lucky. The probability of at least three of seven friends is relatively? large, so we would expect to see this result on a pretty regular basis.

A 30-year old teacher with $100,000 dollars to invest has approached you. The teacher is married and has two children who are five years and seven years old. Please share the specific advice you would give to the teacher in terms of investment assets (types of mutual funds, bonds etc....) and allocations to be chosen.

1. Does therapy combined with exercise alleviate depressive symptoms more than therapy alone? People who were newly diagnosed with mild depression were invited into the study. Study participants were carefully matched on age, race and gender. One person from each pair was assigned to the therapy alone group, and the other was assigned to the therapy plus exercise group. Twelve weeks later, the depression levels of the two groups were compared to see which of the two groups had a lower number of depressive symptoms. The data:

Complete the appropriate test to answer the research question. To be done by hand.

6. Why do you need to declare the data type of a variable before you can use it in Java? Give two (2) reasons

7. Is the World Wide Web and the Internet just two names for the same entity? Explain.

8. Why was it necessary to use the import statement when we used Scanner and Random?

9. Communication was a problem at Target. What would you recommend as an escalation process if someone encounters a threat and wants it to be known to upper management?

10. TCP is extremely reliable in delivering messages. Explain how this reliability is built into the message distribution process. Optional

11. The Operating System of a computer is the glue that bridges the hardware and software of a computer to make it work. Explain three (3) ways (features) the operating system provides to accomplishes that

. 12. Name the three (3) programming constructs we coded in class using Java along with a description of each one.

5 year ago, the bond issuer issued a 30-year 7% semiannual bond when the market interest rate was 6%. 5 years later, the interest rate changes to 8%, so what is the rate of return for this bond for the last 5 years?

About 30,000 Joules of energy is stored in a typical 1.5 volt D-cell battery. If two such batteries are joined to produce a total of 3 volts in a circuit and cause 1.2 amps of current, how long will the batteries be able to deliver power to the circuit at this level? The resistance of an electric heater is 8 ohms when connected to 120 volts, how much energy does it use during 40 minutes of operation?

1. Consider a forward contract for one share of a stock, with T = 0.5 (6 months).
The current stock price is S0 = 50. We assume that the risk-free interest rate is r = 0.05,
and that the stock pays discrete dividends, there being exactly one dividend payment, of
size 0.75, between times 0 and T, and the payment happens at time t = 1/3 (4 months).
Calculate the price of the forward contract. Show your work. Use two decimal places in your
answer. Use sufficiently many decimals in intermediate calculations to make sure that your
two decimals in the final answer are correct.