EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
expand_more
expand_more
format_list_bulleted
Question
Chapter 13.A, Problem 2AP
Sub part (a):
To determine
How monopolistic competition differs from pure competition.
Sub part (b):
To determine
How monopolistic competition differs from pure competition.
Sub part (c):
To determine
How monopolistic competition differs from pure competition.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Consider whether the promises and threats made toward each other by duopolists and
oligopolists are always credible (believable). Look at the figure below. Imagine that the
two firms will play this game twice in sequence and that each firm claims the following
policy. Each says that if both it and the other firm choose the high price in the first game,
then it will also choose the high price in the second game (as a reward to the other firm
for cooperating in the first game).
RareAir's price strategy
High
Low
$12
$15
A
В
High
$12
$6
$6
$8
Low
$15
$8
a. As a first step toward thinking about whether this policy is credible, consider the
situation facing both firms in the second game. If each firm bases its decision on what to
do in the second game entirely on the payouts facing the firms in the second game, which
strategy will each firm choose in the second game?
(Click to select)
b. Now move one step back. Imagine that it is the start of the first game and each firm
must decide what to…
Consider whether the promises and threats made toward each other by duopolists and oligopolists are always credible (believable).
Look at the figure below. Imagine that the two firms will play this game twice in sequence and that each firm publicly proclaims the
following policy. Each says that if both it and the other firm choose the high price in the first game, then it will also choose the high
price in the second game (as a reward to the other firm for cooperating in the first game). (Note: Profit payoffs are shown in millions of
dollars.)
RareAir's price strategy
High
Low
$12
$15
High
$12
$6
C
$6
$8
Low
$15
$8
a. As a first step toward thinking about whether this policy is credible, consider the situation facing both firms in the second game. If
each firm bases its decision on what to do in the second game entirely on the payouts facing the firms in the second game, which
strategy will each firm choose in the second game?
|(Click to select)
b. Now move backward in time one step.…
Consider whether the promises and threats made toward each other by duopolists and oligopolists are always credible (believable).
Look at the figure below. Imagine that the two firms will play this game twice in sequence and that each firm publicly proclaims the
following policy. Each says that if both it and the other firm choose the high price in the first game, then it will also choose the high
price in the second game (as a reward to the other firm for cooperating in the first game). (Note: Profit payoffs are shown in millions of
dollars.)
RareAir's price strategy
High
Low
$12
$15
A
High
$12
$6
$6
D
$8
Low
$15
$8
a. As a first step toward thinking about whether this policy is credible, consider the situation facing both firms in the second game. If
each firm bases its decision on what to do in the second game entirely on the payouts facing the firms in the second game, which
strategy will each firm choose in the second game?
(Click to select)
b. Now move backward in time one step.…
Chapter 13 Solutions
EP ECONOMICS,AP EDITION-CONNECT ACCESS
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
Knowledge Booster
Similar questions
- Consider a “punishment” variation of the two-firm oligopoly situation shown in Figure 14.1. Suppose that if one firm sets a low price while the other sets a high price, then the firm setting the high price can fine the firm setting the low price. Suppose that whenever a fine is imposed, X dollars is taken from the low-price firm and given to the high-price firm. What is the smallest amount that the fine X can be such that both firms will want to always set the high price?arrow_forwardConsider two firms who compete with each other in terms of quantity. If the inverse market demand and total costs of the firms are given by P = 140 – Q TC, = 20q, + 10 TC2 = 20q1 + 10 a. Find the Response (Reaction) functions of each curve b. Find the Nash Equilibrium of this Cournot duopoly game c. Graphically represent this equilibrium using their Response (Reaction) curves d. Suppose these two firms collude and form a cartel, what will the equilibrium be under this situation e. Is the equilibrium under (d) sustainable or not and why? f. Suppose that both firms have agreed that firm 1 is a leader and firm 2 is a follower, find the Nash equilibrium of this sequential gamearrow_forwardConsider a Cournot duopoly. The inverse demand function of the market is given by p = 10-Q, where p is the market price, and Q = 91 +92 is the aggregate output. The marginal costs of the two firms are C₁ 1 and C₂ = 4. = (a) Solve for the Nash equilibrium of the game including firm out- puts, market price, aggregate output, and firm profits. (b) Now suppose these two firms play a 2-stage game. In stage 1, they produce capacities 9₁ and 92, which are equal to the Nash equilibrium quantities of the Cournot game characterised by part (a). In stage 2, they simultaneously decide on their prices p₁ and P2. The marginal cost for each firm to sell up to capacity is 0. It is impossible to sell more than capacity. The residual demand for 10 Piāj if Pi > Pj firm ij, is Di (Pi, Pj) = 10-Pi 2 = if pipi. (Note, if Pi < Pj 10 - Pi here we assume that the efficient/parallel rationing applies). Prove that it is a Nash equilibrium of the second stage subgame that each firm charges the market clearing…arrow_forward
- In the market for video game consoles, Microsoft and Sony are essentially a duopoly, with Nintendo at a distant third. Consider a purely hypothetical game in which the executives of the two companies are deciding how much they will spend on advertising. To simplify, assume that they can either spend a lot or spend a little. If both firms spend a lot, Sony's hypothetical profit will be $2 billion and Microsoft's hypothetical profit will be $1 billion. If they both spend a little, Sony's profit will be $9 billion and Microsoft's profit will be $7 billion. If Sony spends a lot and Microsoft spends a little, Sony's profit will be $8 billion and Microsoft's profit will be $2 billion. Finally, if Sony spends a little and Microsoft spends a lot, Sony's profit will be $3 billion and Microsoft's profit will be $6 billion. Create the payoff matrix for this game. Does Sony have a dominant strategy? If so, what is it? Does Microsoft have a dominant strategy? If so, what is…arrow_forwardConsider a Cournot oligopoly with three firms i = 1; 2; 3. All firms have the same constant marginal cost c = 1. The inverse demand function of the mParket is given by P = 9Q, where P is the market price, and Q = (q1 + q2+q3) is the aggregate output. Solve for the Nash equilibrium of the game including firm outputs, market price, aggregate output, and firm proftsarrow_forwardSometimes oligopolies in the same industry are very different in size. Suppose we have a duopoly where one firm (Firm A) is large and the other firm (Firm B) is small, as the prisoner’s dilemma box in Table 10.4 shows. Firm B colludes with Firm A Firm B cheats by selling more output Firm A colludes with Firm B A gets $1,000, B gets $100 A gets $800, B gets $200 Firm A cheats by selling more output A gets $1,050, B gets $50 A gets $500, B gets $20 Table10.4 Assuming that both firms know the payoffs, what is the likely outcome in this case?arrow_forward
- Consider a two-player game between Child's Play and Kid's Corner, each of which produces and sells swing sets for children. Each player can set either a high or a low price for a standard two-swing, one-slide set. If they both set a high price, each receives profits of $64,000 per year. If one sets a low price and the other sets a high price, the low-price firm earns profits of $72,000 per year, while the high-price firm earns $20,000. If they both set a low price, each receives profits of $57,000. Assume also that the annual discount rate is r = 25%, or 8 = 0.8. The price-setting game in each year could be represented in the following normal form: CP (row)/ KC (column) High Price Low Price Game between CP and KC High Price 64, 64 72, 20 Low Price 20, 72 57, 57 a) What is the stage equilibrium of the prisoners' dilemma between CP and KC? i.(L,H) ii. (H,L) iii. (L,L) iiii. (H,H) b) What is the cooperative strategy profile? i.(L,H) ii. (H,L) iii. (L,L) iiii. (H,H) c) Suppose we repeated…arrow_forwardIn a repeated game of Bertrand competition, suppose two firms are playing the grim trigger strategy. They discount future payoffs at B. A firm will play the monopoly price and earn 8 every period, so long as the other firm does the same. However, if a firm deviates from playing the monopoly price, the other firm plays the one-shot Bertrand outcome forever. Collusion is a Nash equilibrium if B is Select J [ Select) Space 1 options: less than or equal to, equal to, greater than or equal to Space 2 options: 0, 0.5, 1, 8, 16arrow_forwardConsider a market with two firms, Coke and Pepsi, that produce soft drinks. Both firms must choose whether to charge a high price ($1.25) or a low price ($0.65) for their soft drinks. These price strategies with corresponding profits are depicted in the payoff matrix to the right. Coke's profits are in red and Pepsi's are in blue. Coke's dominant strategy is to pick a price of dominant strategy is to pick a price of $ What is the Nash equilibrium for this game? A. Coke and Pepsi will both choose a price of $1.25. B. Coke will choose a price of $1.25 and Pepsi will choose a price of $0.65. and Pepsi's O C. Coke will choose a price of $0.65 and Pepsi will choose a price of $1.25. D. Coke and Pepsi will both choose a price of $0.65. Price = $1.25 Pepsi Price = $0.65 Price = $1.25 Price = $0.65 $800 Coke $900 $800 $175 $175 $700 $900 $700arrow_forward
- Consider the following version of the Stackelberg duopoly in which a long-term firm competes with several short-term firms. The short-term firms are only on the market for a period while the long-term firm remains on the market for the entire duration of the game. In each stage game t, first the short-term firm fixes an amount xt. Then, the long-term firm observes xt and chooses a quantity yt. Then, both firms sell their quantities at the price pt = 1-(xt + yt). All firms have marginal costs equal to 0. The short-run firm maximizes its profit, which occurs at every t. For its part, the long-term firm maximizes the present value of the flow of benefits with a discount rate = 0.99At the beginning of each stage game, previously decided actions are common knowledge. 1. What is the subgame perfect equilibrium if the game is played a finite number of periods T? 2. Now consider the infinitely repeated version of this game. Find the subgame perfect equilibrium where at = and Yt ½ in each…arrow_forwardA duopoly faces an inverse market demand of: p= 390 - 341 - 392. You are told that firm 1 is the leader and firm 2 is the follower. Otherwise the firms are identical, each with a constant marginal cost of $90. What oligopoly model will you use to analyze this market? The Stackelberg model At the Nash equilibrium, firm 1 will produce 60.0 units. (Round your answer to one decimal place.) At the Nash equilibrium, firm 2 will produce 30.0 units. (Round your answer to one decimal place.)arrow_forwardTo advertise or not to advertise Suppose that Creamland and Dairy King are the only two firms that sell ice cream. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: (base to table) For example, the upper right cell shows that if Creamland advertises and Dairy King doesn't advertise, Creamland will make a profit of $15 million, and Dairy King will make a profit of $2 million. Assume this is a simultaneous game and that Creamland and Dairy King are both profit-maximizing firms. If Creamland decides to advertise, it will earn a profit of $_____ million if Dairy King advertises and a profit of $____ million if Dairy King does not advertise. If Creamland decides not to advertise, it will earn a profit of $______ million if Dairy King advertises and a profit of $_____million if Dairy King does not advertise. If Dairy King advertises, Creamland makes a higher profit if it chooses (to…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc