Economics Today: The Macro View, Student Value Edition Plus MyLab Economics with Pearson eText --Access Card Package (18th Edition)
18th Edition
ISBN: 9780134004945
Author: Roger LeRoy Miller
Publisher: PEARSON
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Question
Chapter 11, Problem 9P
To determine
The effect of an increase in total planned expenditure in U.S households on
Concept introduction:
Aggregate
Real
Inflationary gap: Inflationary gap is the excess of actual aggregate supply over potential aggregate supply. It arises when AD exceeds full-employment AS.
Recessionary gap: Recessionary gap is the excess of potential aggregate supply over actual aggregate supply. It arises when AD falls short of full-employment AS.
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Use a game tree to illustrate why an aircraft manufacturer may price below the current marginal cost in the short run if it has a steep learning curve.
(Hint:
Show that learning by doing lowers its cost in the second period.)
Part 2
Assume for simplicity the game tree is illustrated in the figure to the right. Pricing below marginal cost reduces profits but gives the incumbent a cost advantage over potential rivals. What is the subgame perfect Nash equilibrium?
Answer
M” method
Given the following model, solve by the method of “M”. (see image)
Chapter 11 Solutions
Economics Today: The Macro View, Student Value Edition Plus MyLab Economics with Pearson eText --Access Card Package (18th Edition)
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