1. Chapter 11
Ajax Cleaning Products is a medium-sized firm operating in an
industry dominated by one large firm Tile King. Ajax produces
a multi-headed tunnel wall scrubber that is similar to a model
produced by Tile King. Ajax decides to charge the same price as
Tile King to avoid the possibility of a price war. The price
charged by Tile King is $20,000.
Ajax has the following short-run cost curve:
800,000 – 5,000Q + 100Q2.
A. Computer the marginal cost curve for Ajax.
B. Given Ajax’s pricing strategy, what is the marginal revenue
function for Ajax?
4. Unique Creations holds a monopoly position in the
production and sale of manometers. The cost function facing
Unique is estimated to be
TC = $100,000 + 20Q
.
What is the marginal cost for Unique?
If the price elasticity of demand for Unique is currently -1.5,
what price should
Unique
charge?
C.
What is the marginal revenue at the price computed in Part (b)?
6. Wyandotte Chemical Company sells various chemicals to the
automobile industry. Wyandotte currently sells 30,000 gallons
of polyol per year at an average price of $15 per gallon. Fixed
costs of manufacturing polyol
are $90,000 per year and total variable costs equal $180,000.
The operations research department has estimated that a 15
percent increase in output would not affect fixed costs but
would reduce average variable costs by 60 cents per gallon. The
marketing department has estimated the arc elasticity of demand

2. for polyol to be –2.0.
A. How much would Wyandotte have to reduce the price of
polyol to achieve a 15 percent increase in the quantity sold?
B. Evaluate the impact of such price cut on (i) total revenue, (ii)
total costs, and (iii) total profits.
Chapter 12
1. Assume that two companies (C and D) are duopolists that
produce identical products. Demand for the products is given by
the following linear demand function:
P=600– Qc- Qd
where Qc and Qd are the quantities sold by the respective firms
and P is the selling price. Total cost functions for the two
companies are
TCc=25,000 + 100Qc
TCd=20,000 + 125Qd.
Assume that the firms act independently as in the Cournot
model (i.e., each firm assumes that the other firm Â’s output
will not change).
A. Determine the long-run equilibrium output and selling price
for each firm.
B. Determine the total profits for each firm at the equilibrium
output found in Part (a). This is answer for part (a).
2. Assume that two companies (A and B) are duopolists who
produce identical products. Demand for the products is given by
the following linear demand function:
P= 200 - Qa – Qb
Where Qa and Qb are the quantities sold by the respective firms
and P is the selling price. Total cost functions for the two
companies are:
TCa= 1,500 + 55Qa + Q2a
TCb = 1,200 + 20Qb + 2Q2b .
Assume that the firms act independently as in the Cournot
model (i.e., each firm assumes that the other firm Â’s output
will not change).
A. Determine the long-run equilibrium output and selling price

3. for each firm
B. Determine Firm
A
, Firm B, and total industry profits at equilibrium solution found
in Part (a).
5. Alchem (L) is the price leader in the polyglue market. All 10
other manufacturers (follower [F] firms) sell polyglue at the
same price as Alchem. Alchem allows the other firms to sell as
much as they wish at the established price and supplies the
remainder of the demand itself. Total demand for polyglue is
given by the following function
( +
QF):
P=20
,000 – 4 QT
Alchem marginal cost function for the manufacturing and
selling polyglue is
MCL =5
,000 + 5QL
The aggregate marginal cost function for the other
manufacturers of polyglue is
S
MCF=2
,000 + 4QF
A. To maximize profits, how much polyglue should Alchem
produce and what price should it charge?
B. What is the total market demand for polyglue at the price
established by Alchem in Part (a)? How much of total demand
do the follower firms supply?