You've been hired as a management consultant to four different companies in competitive industries. They're each trying to figure out if they should produce a little more output or a little bit less in order to maximize their profits. The firms all have typical marginal cost curves: They rise as the firm produces more.

Your staff did all the hard work for you of figuring out the price of each firm's output and the marginal cost of producing one more unit of output at their current level of output. However, they forgot to collect data on how much each firm is actually producing at the moment. Fortunately, that doesn't matter. In your final report, you need to decide which firms should produce more output, which should produce less, and which are producing just the right amount:

a. WaffleCo, maker of generic-brand frozen waffles. Price = $4 per box, marginal cost = $2 per box.

b. Rio Blanco, producer of copper. Price = $32 per ounce, marginal cost = $45 per ounce.

c. GoDaddy.com, domain name registry. Price = $5 per website, marginal cost = $2 per website.

d. Luke's Lawn Service. Price = $80 per month, marginal cost = $120 per month.

2. a. Just based on self-interest, who is more likely to support strong patents on pharmaceuticals: young people or old people? Why?

b. Who is more likely to support strong patent and copyright protection on video games: people who really like old-fashioned video games or people who want to play the best, most advanced video games?

c. How are parts a and b really the same question?

1) For a and c, firm should produce more. For b and c, the firm should produce less.

2)

a) Old people.

b) People who want to play most advanced and best video games.

c) The difference is because of the different in taste $ preference of different age group people for different things.

Step-by-step explanation

1)

The profit maximization level of output is the point where price (P) is equal to the marginal cost (MC). If prices are more than the MC, then the firm can produce more to earn more profits or if prices are less than the MC, then the firm need to reduce its production to cut its cost and earn higher profits.

a)     P = $4 and MC = $2

P > MC

The firm would produce more

b)     P = $32 and MC = $ 45

P < MC

The firm has to cut down its production.

c)      P = $5 and MC = $2

P > MC

The firm would increase its production to earn more.

d)     P = $80 and MC = $120

P < MC

The firm would decrease its production level.

2)

a)

Old people are more likely to support the strong patent on pharmaceuticals as compared to young people. It is because old people know the value of strong patents on pharmaceuticals more than young people as old people are likely to be use medicines. Old people are more dependent on medicines as compared to young and that's why old people value the patent on pharmaceuticals more than young.

b)

People who want to play most advanced and the best video games are more likely to support copyright and patent protection on video games. It is because patent and copyright protection would protect the new and advanced video games and people who value advanced video games more would be more likely to support protect video games.

c)

The answer in above two parts are different based on the people' s preference and how much they value different things. Old people value medicines more than young people, whereas young people are more likely to value video games.