EBK FOUNDATIONS OF ECONOMICS
8th Edition
ISBN: 8220103632225
Author: PARKIN
Publisher: PEARSON
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Chapter 18, Problem 1IAPA
To determine
To compute:
The payoff matrix for the game, equilibrium of the game, efficiency of equilibrium and whether the game is a prisoners' dilemma.
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Students have asked these similar questions
AT&T and Verizon have two pricing strategies: Set a high (monopoly) price or set a low (competitive) price. Suppose that if they both set a competitive price, economic profit for both is zero. If both set a monopoly price, AT&T makes an economic profit of $100 million and Verizon makes an economic profit of $200 million. If AT&T sets a low price and Verizon sets a high price, AT&T makes an economic profit of $200 mil- lion and Verizon incurs an economic loss of $100 million; if AT&T sets a high price and Verizon sets a low price, AT&T incurs an economic loss of $50 million and Verizon makes an economic profit of $250 million.
Create the payoff matrix for this game.
What is the equilibrium of this game? Is the equilibrium efficient?
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.
The figure to the right shows an industry composed of a single monopolistic
domestic firm.
Initially, the firm sells its output exclusively in the domestic market. According to
this figure, the profit-maximizing output level is units and the price is $
Now suppose that this domestic monopolist begins to sell in foreign markets as
well, where it faces a perfectly elastic demand at $6.00.
In the figure, using the line drawing tool, draw the demand curve this firm faces in
its foreign markets. Label this line DF-
Carefully follow the instructions above and only draw the required object.
Now that this firm is operating in two segmented markets, the firm produces
units of output and is accused of dumping because:
O A. more output (4 units) is sold in foreign markets than at home (2 units).
O B. the foreign price of $6.00 is less than the domestic price of $8.00.
10.00-
9.00-
8.00-
7.00-
6.00-
5.00-
4.00-
3.00-
2.00-
1.00-
0.00-
0
Cost, C and Price, P
1
MRDOM
MC
DDOM
4
9
Quantities produced…
Chapter 18 Solutions
EBK FOUNDATIONS OF ECONOMICS
Ch. 18 - Prob. 1SPPACh. 18 - Prob. 2SPPACh. 18 - Prob. 3SPPACh. 18 - Prob. 4SPPACh. 18 - Prob. 5SPPACh. 18 - Prob. 6SPPACh. 18 - Prob. 7SPPACh. 18 - Prob. 8SPPACh. 18 - Prob. 1IAPACh. 18 - Prob. 2IAPA
Ch. 18 - Prob. 3IAPACh. 18 - Prob. 4IAPACh. 18 - Use this information to work Problems 5 to 7. DOJ...Ch. 18 - Use this information to work Problems 5 to 7. DOJ...Ch. 18 - Prob. 7IAPACh. 18 - Which of the following statements is incorrect. In...Ch. 18 - If firms in oligopoly form a cartel, it will...Ch. 18 - Prob. 3MCQCh. 18 - Prob. 4MCQCh. 18 - Prob. 5MCQCh. 18 - Prob. 6MCQCh. 18 - Prob. 7MCQ
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