I: Firms often face the problem of allocating an input in fixed supply among different products.  Find the optimal crude oil allocation for the following example if the profit associated with square foot of fiber is cut to $0.375, while the profit associated with per gallon of gasoline stayed at $0.50.

• What is gasoline marginal profit, given gasoline production function of
  • QG = 72MG - 1.5 MG2,

• What is fiber marginal profit, given fiber production function of
  • QF = 80MF - 2MF2,
• Determine the maximize profit.
• Determine total input availability.

II

• 1. Explain why the cost structure associated with many kinds of information goods and services might imply a market supplied by a small number of large firms.
• 2. At the same time some internet businesses such as grocery home deliveries have continually suffered steep losses regardless of scale. Explain why.
• 3. Could lower transaction costs in e-commerce ever make it easier for small suppliers to compete?
• 4. How might network externalities affect firm operating strategies (pricing, output, and advertising) and firm size?