Question 1

The prisoners' dilemma shows that the players' dominant strategies often lead them to less than optimal outcomes. Is there any way in which this will not be the case?

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Question 2

Bob and Joe both own convenience marts on opposite corners. Both firms are considering expanding the size of their stores. The payoff matrix for this decision is shown below. Does Bob's Mart have a dominant strategy? Explain.

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The answer of Bob and Joe both own convenience marts...

Question 3

An essential assumption of the Cournot model is that each firm aims to maximize profits, based on the expectation that its own output decision will not have an effect on the decisions of its rivals. Critically evaluate this assumption.

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Question 4

Describe the Cournot model.

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Question 5

What is game theory?

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Question 6

What is a dominant strategy?

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Question 7

Arguments by regulators are often made that predatory pricing, with its attendant temporary price-cutting below costs, is an attempt to eliminate rivals with the intent of raising prices after the competition has left. Critically evaluate this argument.

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Question 8

Assuming that firms do not collude, compare the market outcome under oligopoly with the outcome under monopoly.

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Question 9

What conditions are necessary for a cartel to work? Diagram equilibrium price and output determination in a collusive oligopoly market. Explain how a decrease in demand accompanied by cheating by members can help break up a cartel.

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Question 10

What is price leadership?

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Question 11

What is the output level predicted by the Cournot model? Discuss this in terms of the different market models that have been surveyed so far.

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Question 12

Explain how the outcome of the Cournot model is achieved.

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Question 13

In choosing the optimal output, the monopolist had only to consider its own costs and the demand curve that it faced. How do things change under duopoly and what does the Cournot model argue about how firms will behave?

Accepted Answer

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Question 14

Fred and Barney are arrested and charged with illegal concealment of a weapon. The police suspect that Fred and Barney have robbed the local McDino's (fast food restaurant), but do not have enough evidence to make the robbery charge stick. The district attorney separates them and offers them the deal shown in the payoff matrix below. Can we predict what each will do? Explain.

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Question 15

Evaluate the following statement. The Cournot model basically assumes that the sole decision of each firm in a duopoly is one of determining how much to produce not which price to set.

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Question 16

Assuming that firms do not collude, compare the market outcome under oligopoly with the outcome under perfect competition.

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Question 17

What is predatory pricing?

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Question 18

Comment on the following statement: "If one player in the game does not have a dominant strategy, it is impossible to predict the outcome of the game."

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Question 19

Assume two nations are involved in an arms race. They both assume that each faces two choices - sign disarmament accord or continue with military expansion and the building of more nuclear missiles. Explain using the prisoner's dilemma model why both of these nations will choose to escalate the arms race rather than choose bilateral disarmament. During the Cold War President Ronald Reagan was quoted as saying that the United States will "trust, but verify" when discussing nuclear nonproliferation agreements between the U.S. and the Soviet Union. How does this relate to your answer to the first part of this question?

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Question 20

Explain the underlying assumptions of the price leadership model. What conclusions can be made about the price charged and the output produced in an industry that has a dominant price leader?

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Quiz 14: Oligopoly

The prisoners' dilemma shows that the players' dominant strategies often lead them to less than optimal outcomes. Is there any way in which this will not be the case?

Bob and Joe both own convenience marts on opposite corners. Both firms are considering expanding the size of their stores. The payoff matrix for this decision is shown below. Does Bob's Mart have a dominant strategy? Explain.

An essential assumption of the Cournot model is that each firm aims to maximize profits, based on the expectation that its own output decision will not have an effect on the decisions of its rivals. Critically evaluate this assumption.

Describe the Cournot model.

What is game theory?

What is a dominant strategy?

Arguments by regulators are often made that predatory pricing, with its attendant temporary price-cutting below costs, is an attempt to eliminate rivals with the intent of raising prices after the competition has left. Critically evaluate this argument.

Assuming that firms do not collude, compare the market outcome under oligopoly with the outcome under monopoly.

What conditions are necessary for a cartel to work? Diagram equilibrium price and output determination in a collusive oligopoly market. Explain how a decrease in demand accompanied by cheating by members can help break up a cartel.

What is price leadership?

What is the output level predicted by the Cournot model? Discuss this in terms of the different market models that have been surveyed so far.

Explain how the outcome of the Cournot model is achieved.

In choosing the optimal output, the monopolist had only to consider its own costs and the demand curve that it faced. How do things change under duopoly and what does the Cournot model argue about how firms will behave?

Evaluate the following statement. The Cournot model basically assumes that the sole decision of each firm in a duopoly is one of determining how much to produce not which price to set.

Assuming that firms do not collude, compare the market outcome under oligopoly with the outcome under perfect competition.

What is predatory pricing?

Comment on the following statement: "If one player in the game does not have a dominant strategy, it is impossible to predict the outcome of the game."

Explain the underlying assumptions of the price leadership model. What conclusions can be made about the price charged and the output produced in an industry that has a dominant price leader?