Answered: 0-3 Explain why predicting oligopoly…

Business

Economics

0-3 Explain why predicting oligopoly behavior is so difficult

Principles of Microeconomics (MindTap Course List)

8th Edition

ISBN:9781305971493

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: Oligopoly

Section: Chapter Questions

Problem 4CQQ

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6.
4. Define oligopoly in your own words and elaborate on the characteristics of oligopoly? .
Jack and Jill are the only two suppliers of water in their village. They go up the hill once a day and come back carrying one bucket of water each (each has one small and one large bucket). They can each choose the big bucket that brings 40 gallons of water, or the small bucket that brings 15 gallons of water. If both use the big buckets (40-gallon buckets): they bring down a total of 80 gallons of water (total production) that they sell to the villagers; they equally split the market. They each make $1,400 in profit. If both use the small buckets (15-gallons buckets): they produce a total of 30 gallons of water that they sell to the villagers, once again they equally split the market. They each make $1,650 profit. If one uses the big bucket and the other uses the small bucket (for a total production of 55 gallons), then: the one with small bucket gets $1,200 profit the one with the big bucket gets $2,000 profit Jack is the row 1. Draw the payoff matrix (1 player and Jill is the column…
9. Antitrust laws Cooperation among oligopolies runs counter to the public interest because it leads to underproduction and high prices. In an effort to bring resource allocation closer to the social optimum, public officials attempt to force oligopolies to compete instead of cooperating. Consider the following scenario: Suppose that two American investment banks negotiate a merger agreement because a financial crisis threatens to bankrupt both firms. This merger could potentially be stopped by a lawsuit brought by which of the following American institutions? O The Defense Department O The Commerce Department O The Justice Department O The Interior Department
1. Consider the pricing game between firm 1 (row) and firm 2 (column) belowwhere each number represents the profits made by each firm.:Table 1: Pricing gameLow HighLow 288,288 360,216High 216,360 324,324 a) Point out the Nash equilibrium. Is this a unique Nash equilibrium?c) What type of commitment can firm 1 make to improve its pay-off?Can it be classified as a threat or promise? (Assume that the commitmentis credible.)d) How would you represent the game as a game tree with the option tocommit?2. Consider the signalling / production game with the order of play given below.Assuming that the signal is informative (i.e. education is sufficiently costly),how would you change the order of the game to make sure that poolingequilibriums are ruled out? Verbally motivate your answer.• Nature chooses ability of the workers a ∈ (H, L), ability is observed byworkers but not employers.• The worker choose an education level s ∈ (0, 1).• The employer offer contracts w(s).• The worker accepts or…
Subject : - Economics
4. Game theory: An example of the prisoner's dilemma in the real world is when two competitors are battling it out in the marketplace. Often, many sectors of the economy have two main rivals. There can be rivalry such as between du and Etisalat in Telecommunications services, Coca-Cola and Pepsi-Cola in soft drinks. Suppose du plans to cut its price. Etisalat will likely follow suit to retain its market share. This may end up with low profits for both companies. A price drop by either company may thus be construed as defecting since it breaks an implicit agreement to keep prices high and maximize profits. Thus, if du drops its price but Etisalat continues to keep prices high, du is defecting, while Etisalat is cooperating (by sticking to the spirit of the implicit agreement). In this scenario, du may win market share and earn incremental profits by selling more. Assume that the incremental profits that accrue to du and Etisalat are as follows: o If both keep prices high (Cooperate),…
5.
5. To advertise or not to advertise Suppose that two firms, Frankencakes and Thinley's, are the only sellers of crepes in some hypothetical market. The following payoff matrix gives the profit (in millions of dollars) earned by each company depending on whether or not it chooses to advertise: Frankencakes Thinley's Advertise Doesn't Advertise Advertise 9,9 Doesn't Advertise 3,15 For example, the lower left cell of the matrix shows that if Thinley's advertises and Frankencakes does not advertise, Thinley's will make a profit of $15 million, and Frankencakes will make a profit of $3 million. Assume this is a simultaneous game and that Frankencakes and Thinley's are both profit- maximizing firms. advertise If Frankencakes chooses to advertise, it will earn a profit of 5 15,3 11.11 If Frankencakes chooses not to advertise, it will earn a profit of S not advertise. Both firms will choose to advertise O Both firms will choose not to advertise. million if Thinley's advertises and a profit of…
1. Consider the following game matrix. Player A Answer: Top Bottom Left a, b e, f Player B Right c, d g, h (a) If top and left are strictly dominant strategies, then what do we know the relationship of the parameters? (b) If (top, left) is a Nash equilibrium, then what do we know the relationship of the parameters? Answer: (c) If top and left are strictly dominant strategies, will (top, left) be a Nash equilibrium? Why? Answer: (d) If (top, left) is a Nash equilibrium, must the strategies be strictly dominant strategies? Why? Answer:
2. (17) Bob and Joe both own convenience marts on opposite corners. Both firms are considering expanding the size their stores. The payoff matrix for this decision is shown below. Does Bob's Mart have a dominant strategy? Explain why or why not. Expand Bob's Mart Strategy Joe's Expand Mart Strategy Don't Expand Bob's profit $-1,000 Joe's profit=$-1,000 Bob's profit $10,000 Joe's profit=$-2,000 Don't Expand Bob's profit $-2,000 Joe's profit $10,000 Bob's profit $15,000 Joe's profit=$5,000 = 3.Suppose that an industry contains only four firms. The table below shows the market share of each firm in the market. Percentage Share of: Firm A 25 Firm B 30 Firm C 15 Firm D 30 (16) Calculate the Herfindahl-Hirschman index for the industry. In which category would regulators consider this industry base on the index?
6. Using a payoff matrix to determine the equilibrium outcome Suppose that Zipride and Citron are the only two firms in a hypothetical market that produce and sell electric scooters. The following payoff matrix gives profit scenarios for each company (in millions of dollars), depending on whether it chooses to set a high or low price for scooters. Zipride Pricing price. High Low For example, the lower-left cell shows that if Zipride prices low and Citron prices high, Zipride will earn a profit of $13 million, and Citron will earn a profit of $3 million. Assume this is a simultaneous game and that Zipride and Citron are both profit-maximizing firms. Citron Pricing High 9,9 13, 3 If Zipride prices high, Citron will make more profit if it chooses a Low If the firms do not lude, 3, 13 6, 6 If Citron prices high, Zipride will make more profit if it chooses a price. Considering all of the information given, pricing low True False Both Zipride and Citron will choose a low price. strategies…