Please answer the questions below. The length of the written case assignment form responses should be one page, single spaced. You need to provide reasonably detailed and insightful answers to the questions below. You have a decision to make as Nash. To simplify things, assume that you can either (A.) sell the property to Fledgling (you won’t face legal repercussions), or (B.) not sell the property (delaying the sale while you investigate the toxic waste will likely kill the sale). 1. What/who are the main stakeholders to your decision? List them with a brief explanation. 2. What would you do? Sell it or not sell it? Why? 3. Please indicate whether your decision in 2. is more consistent with utilitarianism, profit maximization, or universalism, and explain why. By the way, at the end, give me several sentences to answer the question “What was your decision in ‘Desperate Air?’ Sell? Not sell? Why?” as a short summary. ECONOMICS 312 – INTERMEDIATE MICRO II 1. Draw a graph for a CDP firm which faces a demand curve showing Q=0 at P=$12, and Q=8 at P=$8, a SRMC curve which intersects MR at Q=8, and SRATC=$6 at Q=8. What level of output should this firm produce? At that output would the firm make a profit, or loss? How much per unit and in total? 2. Using the same information from the previous question, assume the SRATC changes so that at Q=8 the firm incurs a loss of $2/unit but P>AVC by $2. Redraw the graph and determine the firm’s profit or loss. Will the firm produce in the SR? 3. Suppose you decide to open a gym/health club in Salem. You decide to charge your customers $100/year in membership fees plus a yearly fee. Suppose you know that there are two types of people who will join your club, the Type I people and the Type II people. Type I people had demand: P=200-Q and Type II people have demand: P=400-Q. At a price of $100 how many memberships will you sell to each group (assume Q is determine by the point at which price intersects the demand curves). What is the highest yearly fee you can charge without losing the Type I people? 4. A firm that believes that its customers are either Type A customers or Type B customers. The firm estimates the demand for Type A’s as: P=200-2Q and for Type B’s: P=100- 1/2(Q). Using the point-slope formula for price elasticity of demand, determine which Type has more elastic demand and which has less elastic demand. 5. The demand for a cable television package by Group A is: P=200-Q. For Group B is: P = 500-5Q. Assuming the cable provider can distinguish between the two groups, what is the equilibrium price and quantity for each group assuming that MC=50? What is the amount of consumer surplus for each group? 6. What three conditions are necessary to engage in price discrimination? What are the three kinds of price discrimination that you might find on in a college campus or a college town like WOU’s or Monmouth (provide examples of each)? 7..

1. Please answer the questions below. The length of the written
case assignment form responses should be one page, single
spaced. You need to provide reasonably detailed and insightful
answers to the questions below.
You have a decision to make as Nash. To simplify things,
assume that you can either (A.) sell the property to Fledgling
(you won’t face legal repercussions), or (B.) not sell the
property (delaying the sale while you investigate the toxic waste
will likely kill the sale).
1. What/who are the main stakeholders to your decision? List
them with a brief explanation.
2. What would you do? Sell it or not sell it? Why?
3. Please indicate whether your decision in 2. is more
consistent with utilitarianism, profit maximization, or
universalism, and explain why.
By the way, at the end, give me several sentences to answer the
question “What was your decision in ‘Desperate Air?’ Sell? Not
sell? Why?” as a short summary.
ECONOMICS 312 – INTERMEDIATE MICRO II
1. Draw a graph for a CDP firm which faces a demand curve
showing Q=0 at P=$12, and
Q=8 at P=$8, a SRMC curve which intersects MR at Q=8, and
SRATC=$6 at Q=8. What
level of output should this firm produce? At that output would
the firm make a profit, or
loss? How much per unit and in total?

2. 2. Using the same information from the previous question,
assume the SRATC changes so
that at Q=8 the firm incurs a loss of $2/unit but P>AVC by $2.
Redraw the graph and
determine the firm’s profit or loss. Will the firm produce in the
SR?
3. Suppose you decide to open a gym/health club in Salem. You
decide to charge your
customers $100/year in membership fees plus a yearly fee.
Suppose you know that there
are two types of people who will join your club, the Type I
people and the Type II
people. Type I people had demand: P=200-Q and Type II people
have demand: P=400-Q.
At a price of $100 how many memberships will you sell to each
group (assume Q is
determine by the point at which price intersects the demand
curves). What is the highest
yearly fee you can charge without losing the Type I people?
4. A firm that believes that its customers are either Type A
customers or Type B customers.
The firm estimates the demand for Type A’s as: P=200-2Q and
for Type B’s: P=100-
1/2(Q). Using the point-slope formula for price elasticity of
demand, determine which
Type has more elastic demand and which has less elastic
demand.
5. The demand for a cable television package by Group A is:

3. P=200-Q. For Group B is: P =
500-5Q. Assuming the cable provider can distinguish between
the two groups, what is the
equilibrium price and quantity for each group assuming that
MC=50? What is the amount
of consumer surplus for each group?
6. What three conditions are necessary to engage in price
discrimination? What are the three
kinds of price discrimination that you might find on in a college
campus or a college
town like WOU’s or Monmouth (provide examples of each)?
7. Allstate Insurance and Aetna are fierce rivals in the insurance
industry. The output of
insurance policies issued by Allstate is an important factor in
Aetna’s decision of how
many policies to issue (the number of policies that maximize
profits). Similarly, the
output of insurance policies issued by Aetna is an important
factor in Allstate’s decision
of how many policies to issue (the number of policies that
maximize profits). The
reaction function for Allstate can be expressed as: Qallstate =
100 – 0.5(Qaetna). The
reaction function for Aetna is: Qaetna = 50 – 0.25(Qallstate).
a) Graph both reaction functions. Be sure you indicate
numerically the points at
which each function intersects the horizontal and vertical axes.

4. b) At which output quantities do the reaction functions
intersect?
8. A homogeneous products duopoly faces a market demand
curve function of P=300-3(Q),
where Q = q1 + q2. Both firms have constant MC = 100.
a. Derive each firm’s reaction function and graph those
functions.
b. What is the Cournot equilibrium quantity per firm and the
price?
c. What would the equilibrium price and output be if this market
were perfectly
competitive?
d. What would the equilibrium price and output be if this
market were a monopoly?
9. There are two firms in the insurance industry, Firm A and
Firm B. Assume each firms
acts independently to determine its profit maximizing output of
insurance policies and the

5. price of those policies. The demand for Firm A’s policies is
P=100-Q and its marginal
cost is MC=Q. The demand for Firm B’s policies is P=60-Q and
its marginal cost is
MC=2Q.
A. Determine each firm’s marginal revenue.
B. Determine Firm A’s profit maximizing output and price.
C. Determine Firm B’s profit maximizing output and price.
Suppose the two firms form a cartel and their joint demand
function is P=80-(Q/2).
D. Determine their joint marginal revenue.
E. Determine their joint marginal cost.
F. Determine their profit maximizing output and price.
G. Determine each firm’s quota.
.
10. Assume the labor market for accountants is competitive. The
inverse demand function is
P=500–Q and the inverse supply function is: P=140+Q.

6. A. Solve for the equilibrium wage and quantity of accountants
hired. Calculate the
consumer surplus, producer surplus and gains to trade. Show on
a graph.
B. Now assume that accountants form a labor union and restrict
the number of
accountants available to work to 120. Assume the demand
schedule is unchanged.
Calculate the wage, consumer surplus, producer surplus, gains
to trade, and
deadweight loss. Illustrate with a graph.
C. Suppose there was no labor union for accountants but there
was only one firm hiring
accountants. Determine the mathematical expression for the
marginal cost of labor
schedule. How many accountants will be hired and what wage
will they receive? At
the quantity hired by the monopolist, how much would the
monopolist be willing to
pay? Calculate consumer surplus, producer surplus, gains to
trade, and deadweight
loss. Use a graph.
D. Assume the labor market for accountants is a bilateral
monopoly, using the equations

7. above, draw a graph of the labor market. How many accountants
are hired? What is
the highest wage possible? What is the lowest wage possible?
What is the deadweight
loss?
Desperate Air
Desperate Air Corporation (DAC) flies routes along the U.S.
East Coast. DAC acquired a number of hotels and undeveloped
properties five years ago as part of a short-lived diversification
strategy. DAC has recently experienced substantial losses, has a
negative cash flow, and bankruptcy looms as a possibility
unless high labor costs can be reduced and consumer confidence
restored.
Benton Williams has just been brought in as CEO to revitalize
DAC. Williams began by cutting back on middle management
and by placing a one-year moratorium on hiring new business
graduates. Middle managers terminated by DAC and other
airlines are having a tough time finding equivalent jobs.
DAC owns a large, undeveloped ocean front property on the
east coast of Florida. Williams directs George Nash, DAC's
Vice President of Real Estate, to find a buyer for the property to
generate badly needed cash. After some effort, Nash identifies
Fledgling Industries, a relatively new developer of retirement
villas, as a good prospect. Fledgling is interested in finding a
property on which it could build a complex of high rise
retirement condos featuring elaborate walking trails and outside
recreational facilities.
DAC had conducted a full environmental audit of the property

8. six months earlier and had discovered no problems. A copy of
this report was given to the Fledgling representative, who also
walked over the property and discovered no problems. The
representative asked, "Anything I should know about?" Nash
replied, "No problems."
As the negotiations progressed with Fledgling, Nash was
approached by a long time friend at DAC, Laura Devitt, who
told him that there was now some highly toxic waste on the
property. She said she heard this might be true through the
rumor mill at the firm and that she had been curious enough to
check things out. Walking around on the property one day, she
had found several partially buried metal containers marked
DANGER/BIOHAZARD. RADIOACTIVE MEDICAL WASTE.
The containers were rusted where they were exposed; two were
cracked and their liquid contents was seeping onto the ground.
Laura told Nash she wanted him to know about this because she
was worried that innocent people could be hurt if the sale went
through.
Nash contacted Williams, but before he could mention the
containers to him, Williams interrupted and told him it was vital
that the sale closed and that it be done as soon as possible. Nash
consulted with a DAC lawyer who told him that under Florida
law it is not necessary to disclose the existence of hazardous
waste on commercial property as long as there hasn't been a
fraudulent misstatement about the condition of the property.
Nash was troubled. Should he mention the hazardous materials
to the Fledgling representative before he closed the sale? He
knew Fledgling had been considering some other similar
properties and Nash thought that if he mentioned the toxic spill
problem Fledgling would probably not go through with the sale.
At the least, disclosure could delay the sale for months while
the spill was investigated and potential liability problems
considered. Nash figured that he would be unlikely ever to deal

9. with Fledgling again regarding future real estate deals because
DAC did not own any other properties that fit Fledgling's
business needs.
The question of whether to close the sale immediately bothered
Nash enough that he talked to his wife about it, and then prayed
about what to do.
*Please see case analysis instructions in the Forms section of
Blackboard*
� Written by Thomas W. Dunfee, The Wharton School,
University of Pennsylvania.
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