Study Guide for Microeconomics
9th Edition
ISBN: 9780134741123
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON
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Question
Chapter 12, Problem 9E
(a)
To determine
The equilibrium values of output of each firm under
(b)
To determine
The equilibrium values of output of each firm under Cournot model.
(c)
To determine
The equilibrium values of output of each firm when D is under Cournot model and E is playing Stackelberg.
(d)
To determine
The equilibrium values of output of each firm when D is under collusion.
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Trick and Gear are the only two producers of flying brooms. They colluded together illegally to strict output and increase price Each firm has two strategies: Comply with the decisions or Cheat to make more profit individually. ▪ If both Comply, each firm makes $2 million a week. ▪ If both Cheat, each firm makes zero economic profit. ▪ If Trick Complies and Gear Cheats, Trick incurs a loss of $1 million and Gear makes a profit of $4.5 million. ▪ If Gear Complies and Trick Cheats, Gear incurs a loss of $1 million and Trick makes a profit of $4.5 million.
Construct a payoff matrix for the game that Trick and Gear must play
Smyth Industries operated as a monopolist for the past several years, earning annual profits amounting to $50 million, which it could have maintained if Jones Incorporated did not enter the market. The result of this increased competition is lower prices and lower profits; Smyth Industries now earns $10 million annually. The managers of Smyth Industries are trying to devise a plan to drive Jones Incorporated out of the market so Smyth can regain its monopoly position (and profit). One of Smyth's managers suggests pricing its product 50 percent below marginal cost for exactly one year. The estimated impact of such a move is a loss of $1 billion. Ignoring antitrust concerns, compute the present value of Smyth Industries' profits if it could have remained a monopoly when the interest rate was 5 percent.
Multiple Choice
$210 million
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It is illegal for any two firms that sell similar products to engage in price-fixing agreements. Violating the anti-trust laws can bring both civil and criminal prosecutions. Nevertheless, price-fixing does take place. Examples would be found at the service plazas along the NY State Thruway and the NJ Turnpike. Each location has a small number of fast-food restaurants. Each fast food restaurant belongs to a different firm, which should create competition, yet at service plazas, all have uncommonly high prices.
Draw a prisoner’s dilemma type of game (2x2) to show the pricing choices and strategies of two competing fast-food restaurants, located at one service plaza. Payoffs are daily profits. Create sensible numbers. Write a brief explanation for the different numbers that you have created.
Identify John Nash’s equilibrium, as well as the optimal outcome for the two fast-food outlets. Also, find and label any strictly dominant strategies.
Actual long-run pricing results at…
Chapter 12 Solutions
Study Guide for Microeconomics
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Similar questions
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