ECONOMICS W/CONNECTPLUS PKG>IC<
20th Edition
ISBN: 9781259685897
Author: McConnell
Publisher: MCG CUSTOM
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Chapter 13.A, Problem 2ADQ
To determine
How monopolistic competition differs from pure competition.
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Newfoundland’s fishing industry has recently declined sharply due to overfish- ing, even though fishing companies were supposedly bound by a quota agree- ment. If all fishermen had abided by the agreement, yields could have been maintained at high levels. LO4
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Suppose that Firm A and Firm B are independently deciding whether to sell at a low price or a high price. The payoff matrix below
shows the profits per year for each company resulting from the two price options.
Firm B High Price
Firm B Low Price
$5 million
$2 million
$3 million
$1 million
$4 million
$5 million
$2 million
$3 million
a. Does Firm A have a dominant strategy?
O The dominant strategy for Firm A is a low price.
O The dominant strategy for Firm A is a high price.
O No, there is no dominant strategy for Firm A.
b. Does Firm B have a dominant strategy?
O The dominant strategy for Firm B is a high price.
The dominant strategy for Firm B is a low price.
O No, there is no dominant strategy for Firm B.
c. What are the Nash equilibria in this game?
Instructions: In order to receive full credit, you must make a selection for each option. For correct answer(s), click the box once to
place a check mark. For incorrect answer(s), click the option twice to empty the box.
2 Firm A charges…
Team 2 plays A Team 2 plays B
Team 1 plays A
0, 24
10, 10
Team 1 plays B
4, 4
24, 0
Consider the infinitely repeated version of the game above. Which of the following is
the smallest discount factor such that the grim trigger strategy under which team 1
plays A and team 2 plays B until a team deviates, after which team 1 plays B forever
and team 2 plays A forever is a Nash Equilibrium?
O 1/2
O3/4
O 1/100
Chapter 13 Solutions
ECONOMICS W/CONNECTPLUS PKG>IC<
Ch. 13.1 - Prob. 1QQCh. 13.1 - Prob. 2QQCh. 13.1 - Prob. 3QQCh. 13.1 - Prob. 4QQCh. 13.4 - Prob. 1QQCh. 13.4 - The D2e segment of the demand curve D2eD1 graph...Ch. 13.4 - Prob. 3QQCh. 13.4 - Prob. 4QQCh. 13.A - Prob. 1ADQCh. 13.A - Prob. 2ADQ
Ch. 13.A - Prob. 3ADQCh. 13.A - Prob. 4ADQCh. 13.A - Prob. 1ARQCh. 13.A - Prob. 2ARQCh. 13.A - Prob. 3ARQCh. 13.A - Prob. 1APCh. 13.A - Prob. 2APCh. 13 - Prob. 1DQCh. 13 - Prob. 2DQCh. 13 - Prob. 3DQCh. 13 - Prob. 4DQCh. 13 - Prob. 5DQCh. 13 - Prob. 6DQCh. 13 - Prob. 7DQCh. 13 - Prob. 8DQCh. 13 - Prob. 9DQCh. 13 - Prob. 10DQCh. 13 - Prob. 11DQCh. 13 - Prob. 12DQCh. 13 - Prob. 13DQCh. 13 - Prob. 1RQCh. 13 - Prob. 2RQCh. 13 - Prob. 3RQCh. 13 - Prob. 4RQCh. 13 - Prob. 5RQCh. 13 - Prob. 6RQCh. 13 - Prob. 7RQCh. 13 - Prob. 8RQCh. 13 - Prob. 1PCh. 13 - Prob. 2PCh. 13 - Prob. 3P
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- Suppose that Firm A and Firm B are independently deciding whether to sell at a low price or a high price. The payoff matrix below shows the profits per year for each company resulting from the two price options. Firm B High Price Firm B Low Price $5 million $2 million $3 million $1 million $4 million $5 million $2 million $3 million a. Does Firm A have a dominant strategy? O The dominant strategy for Firm A is a low price. O No, there is no dominant strategy for Firm A. O The dominant strategy for Firm A is a high price. b. Does Firm B have a dominant strategy? O The dominant strategy for Firm B is a low price. O The dominant strategy for Firm B is a high price. O No, there is no dominant strategy for Firm B. Firm A Low Price Firm A High Pricearrow_forward18. Answer the next question based on the payoff matrix for a two-firm oligopoly where the numbers represent the firms' respective profits given each of their pricing strategies: FIRM Y O $ 800,000 O $1,000,000 O $1,450,000 Strategies: High-price If both firms collude to maximize joint profits, O $1,250,000 FIRM X High-price X = $625,000 Y = $625,000 Low-price X = $275,000 Y = $725,000 Low Price X = $725,000 Y = $275,000 X = $400,000 Y = $400,000 tal profits for the two firms will be:arrow_forwardSuppose O2 and Vodafone are the only two telecommunicationscompanies in UK. Both companies are considering whether ornot to stop offering unlimited data plans. Each company has twostrategies: stop or don’t stop. The first entry in the brackets is the payoffsof O2 and the second entry is the payoffs of Vodafone, both in $million.What will be the dominant strategies of O2 and Vodafone and what willbe the Nash equilibrium? Explain your answers.arrow_forward
- 5. The following represents the payoffs in a one period game in prices HI and LO. A HI LOW B HI (100, 100) (200,0) LOW (0, 200) (50, 50) (a) If A and B were playing this game only once, what strategy should A choose, and why? (b) A and B are playing the same game an infinite number of times and each has a discount rate of 50% (.50). Firm B adopts a trigger strategy and selects HI in the first round. What would be A's present value of profits from cooperation (HI)? What would be its present value from cheating (LO)? Would A choose to cooperate or cheat?arrow_forwardQUESTION 8 Player 1 chooses between Up and Down. Player 2 observes this, then chooses between Up and Down herself. If both players choose the same action, they both get a payoff of 1. If they choose different actions, the player with Up gets 1 and the player with Down gets -1. How many (pure strategy) Nash equilibria are there in this game? O 3 O 4 QUESTION 9 In the Bertrand model, suppose that each firm has a marginal cost of £10 and that firm 1 sets a price of £9.99, which of the following a best-response for firm 2? Click all the correct answers. O £9.99 O £10.01 O £11.01 O £10.00 O £9.98 QUESTION 10 In the Lindahl model, if player 1 is honest and player 2 maximises his utility which of the following is true: O Player 2 has a higher utility than if both players had been honest. O The level of public good provided is more than that implied by the Samuelson rule. O Player 1 consumes more public goods than player 2.arrow_forwardConsider a new card game between 2 players: Michael (player 1) and Phyllis (player 2) Michael is dealt two cards : O7 and 8. Phyllis is also dealt two cards: 09 and 10. Now, each of the players will play 1 card both at the same time. The payoff of Michael is 8 points if he plays a card of opposite color (red/black) than Phyllis, and otherwise his payoff is 10 points. The payoff of Phyllis is 1 points if the difference of the already played card numbers is smaller than 4, otherwise her payoff is 5 points. 1. Find the action sets of each player and the action profile of the game. 2. Represent the game in the Normal form. 3. Find the Best Responses for Michael. 4. Find the Best Responses for Phyllis. 5. Find all the Nash Equilibriums of the game (if any).arrow_forward
- 8. Suppose there are two firms (Fr and F2) producing identical product competing for 20 market share and each of which would like to dominate the other, if possible. They faced a choice between defending and cooperating. When either defends or bou cooperate, neither is able to dominate the other. Assuming these preferences are reflected in their profit pay-offs. If both the players choice to defend, their profit will be 1.500 each. When one Firm defends and the other cooperates their profit level will be 5.000 an 1.000 respectively. Similarly, when both cooperate they end up with profit level of 3.000 each. With this in mind: a. Represent the above game in normal form/strategic form. b. Identify the dominant strategy for both firms and the dominant strategy equilibrium. c. Is the above equilibrium Nash equilibrium? Is it Pareto efficient allocation? Why? d. Assuming the game is one-shoot game and Firm 1 moves first represent it in extended formarrow_forward4. Consider a three-player bargaining, where the players are negotiating over a surplus of one unit of utility. The game begins with player 1 proposing a three-way split of the surplus. Then player 2 must decide whether to accept the proposal or to substitute for player 1's proposal his own alternative proposal. Finally, player 3 must decide whether to accept or reject current proposal (it is player 1's if player 2 accepts or player 2's if player 2 offer a new one). If he accepts, then the players obtain the specified shares of the surplus. If player 3 rejects, then the players each get 0. (a) Draw the extensive form game of this perfect-information game. (b) Determine the subgame perfect NE.arrow_forward4. The following payoff matrix shows the profit payoff to firms A and B from combinations of price strategies HI and LO. A НІ LOW B HI (6, 6) (16, -5) LOW (-7, 15) (0, 0) (a) In a one period game, what strategy would each firm follow, and why? Determine the equilibrium on the one-period game. (b) Now assume the game is infinite in length. Firm B goes HI in period 1 and continues with HI so long as A does as well. Firm A is deciding between HI and LO. Determine the range of discount rates for which HI is the better choice for Firm A.arrow_forward
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