Principles of Microeconomics (Second Edition)
2nd Edition
ISBN: 9780393623840
Author: Lee Coppock, Dirk Mateer
Publisher: W. W. Norton & Company
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Question
Chapter 13, Problem 1SP
To determine
Limiting the hours of sale and the benefit for the shops.
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Students have asked these similar questions
Suppose a town only has two petrol stations, United and BP. Each could choose to
charge a high price or low price, as shown in the matrix below.
ВР
BP charges a low price:
BP has low profit;
United
BP charges a high price:
BP has no profit;
United has high profit
United charges a
United low price:
has
low
profit
ВР
United charges a
high price:
has
BP has average profit;
United
high profit;
United
has
no
has average profit
profit
(a) What is the dominant strategy for the above matrix (i.e., a Nash
equilibrium)? Explain briefly
(b) If the two petrol stations could collude, what would be the likely
strategy? Explain briefly.
(c) Briefly explain the principles of the 'kinked' demand curve by using an example such as
pricing a product by the two supermarket giants.
Question 3:
There are two pubs: Pub A and Pub B. Each can charge its own price for beer, either $2, $4, or $5. The
payoff table below shows the profit earned by each Pub for the different beer price combinations that
each charge. There are nine different scenarios.
Pub B
P = $2
10, 10
12, 14
15, 14
P = $4
14, 12
20, 20
15, 28
P = $5
14, 15
28, 15
25, 25
P= $2
P= $4
P = $5
Pub A
Does each pub have a dominant strategy and if so what is it?
What is the Nash equilibrium or equilibria (multiple equilibrium)? Show your logic, briefly.
a.
b.
Suppose Grady, Grace, and George own the 3 wrecker services in the small town of Collisionville. Each currently charges $350 for a standard towing job within town. Competition is heating up and each wants to grow their market share. Use this information to answer the following:
What does the Law of Demand say that Grace can do to grow her market share?
Suppose that the Kinked Demand Curve Theory describes this market well. How would considering this theory impact Grace’s decision on part 1?
Chapter 13 Solutions
Principles of Microeconomics (Second Edition)
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