Problem 1: Monopoly producer has a total cost function C = 66 + 2Q + Q2 (Hint: MC = 2 + 2Q). Demand for its product is Q = 10 - 0.2P (Hint: MR = 10 - 0.4P).
a. Compute and graph Average Revenue, Marginal Revenue, and Marginal Cost.
b. What are the profit-maximizing output level, price, and profits?
Problem 2: Two slumlords own rows of houses on opposite sides of the street. Each would gain if the other upgraded his own property, but neither wants to upgrade until the other does. Relate this situation to the Prisoner's Dilemma, and provide a table showing the situation of both landlords. Make up numerical examples as appropriate.