question
What are the most important differences between perfectly competitive markets and monopolistically competitive markets?
Unlike in perfectly competitive markets, in monopolistically competitive markets,
Give two examples of products sold in perfectly competitive markets and two examples of products sold in monopolistically competitive markets.
Unlike in perfectly competitive markets, in monopolistically competitive markets,
Give two examples of products sold in perfectly competitive markets and two examples of products sold in monopolistically competitive markets.
answer
Firms face downward-sloping demand curves, and the products competitors sell are differentiated.
Apples and oranges are sold in perfectly competitive markets and Starbucks coffee and Gap clothing
are sold in monopolistically competitive markets.
OR
Wheat and Corn are sold in perfectly competitive markets and Maybelline cosmetics and Ralph Lauren cologne
are sold in monopolistically competitive markets.
Apples and oranges are sold in perfectly competitive markets and Starbucks coffee and Gap clothing
are sold in monopolistically competitive markets.
OR
Wheat and Corn are sold in perfectly competitive markets and Maybelline cosmetics and Ralph Lauren cologne
are sold in monopolistically competitive markets.
question
Why does a local McDonald's face a downward-sloping demand curve for its Quarter Pounder?
In monopolistically competitive markets,
If McDonald's raises the price it charges for Quarter Pounders above the prices charged by other fast-food restaurants, won't it lose all its customers?
In monopolistically competitive markets,
If McDonald's raises the price it charges for Quarter Pounders above the prices charged by other fast-food restaurants, won't it lose all its customers?
answer
Changing the price affects the quantity sold because firms sell differentiated products.
No
No
question
With a downward-sloping demand curve, average revenue is equal to price
With a downward-sloping demand curve, marginal revenue is below price
With a downward-sloping demand curve, marginal revenue is below price
answer
Actually, average revenue is always equal to price, whether demand is downward sloping or not.
Because the firm must lower its price to sell additional units.
Because the firm must lower its price to sell additional units.
question
There are about 400 wineries in California's Napa Valley. Suppose the owner of one of the wineries—Jerry's Wine Emporium—raises the price of his wine by $5.00 per bottle.
If the industry is perfectly competitive, the reaction of consumers would be to
If the industry is monopolistically competitive, the reaction of consumers
If the industry is perfectly competitive, the reaction of consumers would be to
If the industry is monopolistically competitive, the reaction of consumers
answer
Buy wine from another winery.
Could be to remain loyal to Jerry's and pay the higher price.
Could be to remain loyal to Jerry's and pay the higher price.
question
In 2010, Domino's launched a new advertising campaign admitting that its pizzas had not tasted very good, but claiming that they had developed a new recipe that greatly improved the taste. If Domino's succeeded in convincing consumers that its pizza was significantly better than competing pizzas, would its demand curve become flatter or steeper?
When a product becomes
more differentiated from other products, its demand curve becomes
This happens because the slope of the demand curve reflects buyer responsiveness to a price change, which is determined in part by the availability of substitutes. Thus, when a product becomes
more differentiated from other products, buyers perceive it as having _______ good substitutes, and this altered perception induces buyers to be _______ responsive to price.
When a product becomes
more differentiated from other products, its demand curve becomes
This happens because the slope of the demand curve reflects buyer responsiveness to a price change, which is determined in part by the availability of substitutes. Thus, when a product becomes
more differentiated from other products, buyers perceive it as having _______ good substitutes, and this altered perception induces buyers to be _______ responsive to price.
answer
Steeper
Fewer; less
Fewer; less
question
When a product becomes
less differentiated from other products, its demand curve becomes _______.
This happens because the slope of the demand curve reflects buyer responsiveness to a price change, which is determined in part by the availability of substitutes. Thus, when a product becomes
less differentiated from other products, buyers perceive it as having _______ good substitutes, and this altered perception induces buyers to be ______ responsive to price.
less differentiated from other products, its demand curve becomes _______.
This happens because the slope of the demand curve reflects buyer responsiveness to a price change, which is determined in part by the availability of substitutes. Thus, when a product becomes
less differentiated from other products, buyers perceive it as having _______ good substitutes, and this altered perception induces buyers to be ______ responsive to price.
answer
Flatter
More; more
More; more
question
Complete the following table showing the demand for snow skiing lessons per day. Do this by filling in the values for (i), (ii), and (iii).
(i) Total revenue for 3 lessons is
$_______.
(ii) Average revenue for 5 lessons is
$_______.
(iii) Marginal revenue for the
8th lesson is $_______.
(i) Total revenue for 3 lessons is
$_______.
(ii) Average revenue for 5 lessons is
$_______.
(iii) Marginal revenue for the
8th lesson is $_______.
answer
186 (TR=P×Q)
50 (AR=TR/Q)
-10 (MR=ΔTR/ΔQ) (change in far right row)
50 (AR=TR/Q)
-10 (MR=ΔTR/ΔQ) (change in far right row)
question
There are many wheat farms in the United States, and there are also more than 2,000 Panera Bread restaurants.
Why, then, does a Panera Bread restaurant face a downward-sloping demand curve when a wheat farmer faces a horizontal demand curve?
Why, then, does a Panera Bread restaurant face a downward-sloping demand curve when a wheat farmer faces a horizontal demand curve?
answer
Wheat is a homogeneous good, while Panera Bread is able to differentiate its food from other restaurants.
question
Is it possible for marginal revenue for a firm operating in a perfectly competitive industry to be negative?
Would a firm selling in a monopolistically competitive market ever produce where marginal revenue is negative?
Would a firm selling in a monopolistically competitive market ever produce where marginal revenue is negative?
answer
No
No because marginal cost cannot be negative.
No because marginal cost cannot be negative.
question
In the figure to the right, consider the marginal revenue of the
eighth unit sold. When the firm cuts the price from $6.00 to $5.60
to sell the eighth unit, the area in the graph denoting the output effect is given by
In dollars, this effect is $_______.
When the firm cuts the price from
$ 6.00 to $5.60 to sell the eighth unit, the area in the graph denoting the price effect is given by _______.
In dollars, this effect is $_______.
The marginal revenue of the
eighth unit is therefore equal to $_______.
eighth unit sold. When the firm cuts the price from $6.00 to $5.60
to sell the eighth unit, the area in the graph denoting the output effect is given by
In dollars, this effect is $_______.
When the firm cuts the price from
$ 6.00 to $5.60 to sell the eighth unit, the area in the graph denoting the price effect is given by _______.
In dollars, this effect is $_______.
The marginal revenue of the
eighth unit is therefore equal to $_______.
answer
C
5.6
B
2.80
2.80
5.6
B
2.80
2.80
question
Sally runs a vegetable stand. The following table shows two points on the demand curve for the heirloom tomatoes she sells:
Sally's marginal revenue from lowering the price of tomatoes from $4.00 to $2.75 is $_______.
Lowering the price from
$4.50 to $3.25 results in an output effect of $_______ and a price effect of $_______.
Sally's marginal revenue from lowering the price of tomatoes from $4.00 to $2.75 is $_______.
Lowering the price from
$4.50 to $3.25 results in an output effect of $_______ and a price effect of $_______.
answer
($812,500- $675,000)/(250,000- 150,000)=
$1.38.
$1.38.
question
Suppose the figure to the right shows the demand curve for a monopolistically competitive firm. Show the firm's marginal revenue curve.
answer
Picture 1
question
An increase in the price of cappuccino will increase the quantity of cappuccinos demanded.
answer
False
question
The monopolistically competitive firm sells _________ product and faces _________ demand curve.
If marginal revenue slopes downward, which of the following is true?
If marginal revenue slopes downward, which of the following is true?
answer
A differentiated; a downward-sloping
The firm must decrease its price to sell a larger quantity.
The firm must decrease its price to sell a larger quantity.
question
A monopolistically competitive firm doesn't produce where P = MC like a perfectly competitive firm because
answer
P exceeds MR for a monopolistically competitive firm, and it's MR that must equal MC for profit maximization.
question
Stephen runs a pet salon. He is currently grooming 100 dogs per week. If instead of grooming 100 dogs, he grooms 101 dogs, he will add $66.66 to his costs and $67.49 to his revenues. What will be the effect on his profits of grooming 101 dogs instead of 100 dogs?
Stephen's profits will change by
$_________.
Stephen's profits will change by
$_________.
answer
This will be a change of $67.49-$66.66, which is $0.83.
question
If Daniel sells 300 hamburgers at a price of 3.00, and his average cost of producing 300 hamburgers is $2.75, what is his profit?
answer
300x.25 = 75
question
Maria manages a bakery, that specializes in ciabatta bread, and has the following information on demand and costs:
a. To maximize profits, Maria should sell nothing loaves of ciabatta bread per hour.
Maria should charge a price of $_______
Maria's maximum profit is $________
b. The marginal revenue when selling the profit-maximizing number of loaves of ciabatta bread is $_______
The marginal cost when selling the profit-maximizing number of loaves of ciabatta bread is $_______
a. To maximize profits, Maria should sell nothing loaves of ciabatta bread per hour.
Maria should charge a price of $_______
Maria's maximum profit is $________
b. The marginal revenue when selling the profit-maximizing number of loaves of ciabatta bread is $_______
The marginal cost when selling the profit-maximizing number of loaves of ciabatta bread is $_______
answer
4
4.00
1.00 (subtract total cost from total revenue at the profit-maximizing level of output, which was previously found to be where marginal revenue is equal to marginal cost.)
2.50
2.50
4.00
1.00 (subtract total cost from total revenue at the profit-maximizing level of output, which was previously found to be where marginal revenue is equal to marginal cost.)
2.50
2.50
question
Suppose a firm producing table lamps has the following costs:
Ben and Jerry are managers at the company, and they have this discussion:
Ben: We should produce 4,000 lamps per month because that will minimize our average costs.
Jerry: But shouldn't we maximize profits rather than minimize costs? To maximize profits, don't we need to take demand into account?
Ben: Don't worry. By minimizing average costs, we will be maximizing profits. Demand will determine how high the price we can charge will be, but it won't affect our profit-maximizing quantity.
Evaluate the discussion between the two managers.
Ben's assertion that the firm should produce the quantity of lamps where average costs are minimized is
Ben and Jerry are managers at the company, and they have this discussion:
Ben: We should produce 4,000 lamps per month because that will minimize our average costs.
Jerry: But shouldn't we maximize profits rather than minimize costs? To maximize profits, don't we need to take demand into account?
Ben: Don't worry. By minimizing average costs, we will be maximizing profits. Demand will determine how high the price we can charge will be, but it won't affect our profit-maximizing quantity.
Evaluate the discussion between the two managers.
Ben's assertion that the firm should produce the quantity of lamps where average costs are minimized is
answer
Incorrect because profits are instead maximized at the quantity where marginal cost equals marginal revenue, which may be different since marginal revenue depends on consumer demand.
question
According to an article in the Wall Street Journal, in 2015 and 2016, Panera suffered from lower profits in part because of the costs of implementing its "clean food" strategy.
Assuming that Panera's clean food strategy doesn't affect the demand for its turkey sandwiches, the increase in costs will shift _______ Panera's marginal and average _______ curves. As a result, the price it charges for turkey sandwiches will _______ and the quantity it sells will _______.
Assuming that Panera's clean food strategy doesn't affect the demand for its turkey sandwiches, the increase in costs will shift _______ Panera's marginal and average _______ curves. As a result, the price it charges for turkey sandwiches will _______ and the quantity it sells will _______.
answer
up; cost; increase; fall
question
William Germano previously served as the vice president and publishing director at the Routledge publishing company. He once gave the following description of how a publisher might deal with an unexpected increase in the cost of publishing a book: "quote"
According to the graph on the right and what you have learned in this chapter, a monopolistically competitive firm responds to an increase in cost by adjusting the price _______.
This model does not fit Germano's description because he assumes what?
If a publisher does not raise the price of a book following an increase in its production cost, the result will be
The ability of a publishing company to raise book prices when costs increase would be greater, the _______ is the elasticity of demand for published books.
According to the graph on the right and what you have learned in this chapter, a monopolistically competitive firm responds to an increase in cost by adjusting the price _______.
This model does not fit Germano's description because he assumes what?
If a publisher does not raise the price of a book following an increase in its production cost, the result will be
The ability of a publishing company to raise book prices when costs increase would be greater, the _______ is the elasticity of demand for published books.
answer
Upward
Demand is perfectly elastic.
Less than maximum profit
Lower
Demand is perfectly elastic.
Less than maximum profit
Lower
question
In 1916, the Ford Motor Company produced 500,000 Model T Fords at a price of $440. The company made a profit of $60,000,000 that year. Henry Ford told a newspaper reporter that he intended to reduce the price of the Model T to $360, and he expected to be able to sell 800,000 cars at that price. Ford said, "Less profit on each car, but more cars, more employment of labor, and in the end we get all the total profit we ought to make."
a. Did Ford expect the total revenue he received from selling Model Ts to rise or fall following the price cut?
b. Use the information given above to calculate the price elasticity of demand for Model Ts. Use the midpoint formula to make your calculation.
Price elasticity of demand =
a. Did Ford expect the total revenue he received from selling Model Ts to rise or fall following the price cut?
b. Use the information given above to calculate the price elasticity of demand for Model Ts. Use the midpoint formula to make your calculation.
Price elasticity of demand =
answer
Rise because he assumed demand was elastic.
IDK
IDK
question
Suppose the figure to the right illustrates the demand (D) and marginal revenue (MR) curves for a firm that sells dress shirts in a monopolistically competitive market. Let MC be the marginal cost curve.
To maximize profits, how much should the firm produce and what price should it charge?
To maximize profits, how much should the firm produce and what price should it charge?
answer
Picture 2
question
Refer to the graph to the right. In order to maximize profit, what price should the firm charge?
Refer to the table below. What level of output should this firm produce in order to maximize profit?
Refer to the table below. What level of output should this firm produce in order to maximize profit?
answer
$15
5 units of output
5 units of output
question
What effect does the entry of new firms have on the demand curve of an existing firm in a monopolistically competitive market?
The entry of new firms cause the demand curve of an existing firm in a monopolistically competitive market to
The entry of new firms cause the demand curve of an existing firm in a monopolistically competitive market to
answer
Shift to the left and become more elastic.
question
What is the difference between zero accounting profit and zero economic profit?
answer
Zero economic profit includes a firm's
implicit costs but zero accounting profit does not.
implicit costs but zero accounting profit does not.
question
Suppose a monopolistically competitive firm sells a particular brand of jeans. The quantities of jeans sold per day at various prices are shown in the table below.
Fill in total revenue and marginal revenue in the table below
The marginal revenue curve for this firm is _______ its demand curve.
Fill in total revenue and marginal revenue in the table below
The marginal revenue curve for this firm is _______ its demand curve.
answer
TR=Price/output
MR= change in tr/change in q
Below
MR= change in tr/change in q
Below
question
Suppose Abercrombie & Fitch sells clothing in a monopolistically competitive market and that a farmer sells oranges in a perfectly competitive market.
answer
Picture 3
question
Suppose a local McDonald's hamburger restaurant raises the price of its cheeseburgers from $2.00 to $2.50. What will happen to the quantity of McDonald's cheeseburgers demanded?
If McDonald's raises the price of it's cheeseburgers, then
If McDonald's raises the price of it's cheeseburgers, then
answer
Some of McDonald's customers, but not all of them, will still demand McDonald's cheeseburgers because this restaurant may be closer to them.
question
Suppose the figure to the right represents the market for a particular brand of shampoo, such as L'Oreal, Lancome, or Maybelline.
Assume the market is monopolistically competitive.
What is the firm's profit-maximizing price and quantity?
The monopolistically competitive firm's profit-maximizing quantity is
_______ thousand bottles of shampoo, and its profit-maximizing price is $_______ per bottle.
What are the firm's profits?
Profit equals $_______ thousand.
Assume the market is monopolistically competitive.
What is the firm's profit-maximizing price and quantity?
The monopolistically competitive firm's profit-maximizing quantity is
_______ thousand bottles of shampoo, and its profit-maximizing price is $_______ per bottle.
What are the firm's profits?
Profit equals $_______ thousand.
answer
10;2 (Line where MR meets MC line)
2
2
question
Suppose the market for fast-food value meals is monopolistically competitive, with many restaurants selling their own brand of food.
Assume the restaurants in the industry behave optimally by maximizing profit.
The figure represents the market for one monopolistically competitive firm's value meals.
How will this figure change as the market moves toward long-run equilibrium?
In the long run,
Assume the restaurants in the industry behave optimally by maximizing profit.
The figure represents the market for one monopolistically competitive firm's value meals.
How will this figure change as the market moves toward long-run equilibrium?
In the long run,
answer
The demand curve will shift to the left
and become more
elastic because the firms are currently
making profit.
and become more
elastic because the firms are currently
making profit.
question
Suppose the figure to the right represents the market for a particular brand of soap such as Zest, Dove, or Ivory.
Suppose also that the market is monopolistically competitive and the firm behaves optimally to maximize profit.
In the long run, will new firms enter the market or will existing firms exit?
In the long run,
Suppose also that the market is monopolistically competitive and the firm behaves optimally to maximize profit.
In the long run, will new firms enter the market or will existing firms exit?
In the long run,
answer
Picture 4
New firms will enter
because the firm is currently making profit.
New firms will enter
because the firm is currently making profit.
question
Is zero economic profit inevitable in the long run for monopolistically competitive firms?
In the long run, monopolistically competitive firms
In the long run, monopolistically competitive firms
answer
May continue to earn profit by convincing consumers their products are different.
question
Suppose the figure to the right represents the market for a particular brand of shampoo, such as L'Oreal, Lancome, or Maybelline.
Assume the market is monopolistically competitive and is in long-run equilibrium.
How much excess capacity does the firm have?
The monopolistically competitive firm's excess capacity is _______ thousand bottles of shampoo.
Instead, suppose the market is perfectly competitive and is in long-run equilibrium (with the same cost structure as that illustrated in the figure.)
How much excess capacity does the firm have?
The perfectly competitive firm's excess capacity is _______ thousand bottles of shampoo.
Assume the market is monopolistically competitive and is in long-run equilibrium.
How much excess capacity does the firm have?
The monopolistically competitive firm's excess capacity is _______ thousand bottles of shampoo.
Instead, suppose the market is perfectly competitive and is in long-run equilibrium (with the same cost structure as that illustrated in the figure.)
How much excess capacity does the firm have?
The perfectly competitive firm's excess capacity is _______ thousand bottles of shampoo.
answer
4
0
0
question
Do consumers benefit in any way from monopolistic competition relative to perfect competition?
Compared to perfect competition, when a consumer purchases a product from a monopolistically competitive firm, the consumer benefits from purchasing a product
Compared to perfect competition, when a consumer purchases a product from a monopolistically competitive firm, the consumer benefits from purchasing a product
answer
That is appealing because it is differentiated.
question
Do consumers benefit in any way from monopolistic competition relative to perfect competition?
Compared to perfect competition, when a consumer purchases a product from a monopolistically competitive firm, the consumer benefits from purchasing a product
Compared to perfect competition, when a consumer purchases a product from a monopolistically competitive firm, the consumer benefits from purchasing a product
answer
That is more closely suited to their tastes.
question
Are monopolistically competitive firms efficient in long-run equilibrium?
Monopolistically competitive firms
Monopolistically competitive firms
answer
Are not productively efficient because they do not produce at minimum average total cost and they are not allocatively efficient because they produce where price is greater than marginal cost.
question
How does the long-run equilibrium for a monopolistically competitive market differ from the long-run equilibrium for a perfectly competitive market?
One way in which monopolistically competitive markets and perfectly competitive markets differ is that in long-run equilibrium, monopolistically competitive firms
One way in which monopolistically competitive markets and perfectly competitive markets differ is that in long-run equilibrium, monopolistically competitive firms
answer
Charge a price greater than marginal cost.
question
Why do oligopolies exist?
Oligopolies exist due to _______.
Oligopolies exist due to _______.
answer
Barriers to entry
question
The figure to the right shows the market demand for goods and services provided by discount department stores.
Show how economies of scale in this industry can lead to an oligopolistic market by comparing the long-run average cost curves for a typical firm assuming a competitive market with a typical firm assuming an oligopolistic market.
Show how economies of scale in this industry can lead to an oligopolistic market by comparing the long-run average cost curves for a typical firm assuming a competitive market with a typical firm assuming an oligopolistic market.
answer
Picture 5
question
One measure of the extent of competition in an industry is the concentration ratio. What level of concentration indicates that an industry is an oligopoly?
Most economists believe that a four-firm concentration ratio of _______ than _______ percent indicates that an industry is an oligopoly.
Is the concentration ratio an accurate measure of the extent of competition?
The four-firm concentration ratio
Most economists believe that a four-firm concentration ratio of _______ than _______ percent indicates that an industry is an oligopoly.
Is the concentration ratio an accurate measure of the extent of competition?
The four-firm concentration ratio
answer
greater;40
Is flawed in that it
does not include sales in the U.S. by foreign firms. OR Is flawed in that it
is calculated for the national market even though competition in some industries is local.
Is flawed in that it
does not include sales in the U.S. by foreign firms. OR Is flawed in that it
is calculated for the national market even though competition in some industries is local.
question
What effect might the government have on oligopolies?
In oligopolies, the government might
In oligopolies, the government might
answer
Impose barriers to entry with a quota to limit foreign competition. OR Impose barriers to entry with
a patent comma which grants exclusive rights to product a good.
a patent comma which grants exclusive rights to product a good.
question
Ocean Spray has faced limited competition in the market for
fresh and frozen cranberries. What barrier has kept new firms from entering the market for fresh and frozen cranberries?
Ocean Spray
fresh and frozen cranberries. What barrier has kept new firms from entering the market for fresh and frozen cranberries?
Ocean Spray
answer
Has had almost exclusive ownership of cranberries, which is a key input.
question
Consider the market for oil. Suppose for simplicity that there are only two oil producing countries—Saudi Arabia and Kuwait. Both countries must choose whether to produce a low output or a high output.
These output strategies with corresponding profits are depicted in the payoff matrix to the right. Kuwait's profits are in red and Saudi Arabia's are in blue.
Suppose the two countries form a cartel What is the cooperative equilibrium?
What is the Nash equilibrium for this game?
These output strategies with corresponding profits are depicted in the payoff matrix to the right. Kuwait's profits are in red and Saudi Arabia's are in blue.
Suppose the two countries form a cartel What is the cooperative equilibrium?
What is the Nash equilibrium for this game?
answer
The cooperative equilibrium is for Saudi Arabia to produce a low output and Kuwait to produce a low output.
The Nash equilibrium is for Saudi Arabia to produce a low
output and Kuwait to produce a high output.
The Nash equilibrium is for Saudi Arabia to produce a low
output and Kuwait to produce a high output.
question
Consider a market with two firms, Target and Wal-Mart, that sell CDs in their music department. Both stores must choose whether to charge a high price ($20) or a low price ($13) for the new Miley Cyrus CD.
These price strategies with corresponding profits are depicted in the payoff matrix to the right. Target's profits are in red and Wal-Mart's are in blue.
Target's dominant strategy is to pick a price of $_______.
Wal-Mart's dominant strategy is to pick a price of $_______.
What is the Nash equilibrium for this game?
These price strategies with corresponding profits are depicted in the payoff matrix to the right. Target's profits are in red and Wal-Mart's are in blue.
Target's dominant strategy is to pick a price of $_______.
Wal-Mart's dominant strategy is to pick a price of $_______.
What is the Nash equilibrium for this game?
answer
13
13
The Nash equilibrium is for Target and Wal-Mart to both choose a price of $13
13
The Nash equilibrium is for Target and Wal-Mart to both choose a price of $13
question
Consider a market with two firms, Hewlett-Packard (HP) and Dell, that sell printers. Both companies must choose whether to charge a high price ($400) or a low price ($350) for their printers.
These price strategies with corresponding profits are depicted in the payoff matrix to the right. HP's profits are in red and Dell's are in blue. Suppose HP and Dell are initially at the game's Nash equilibrium.
Then, HP and Dell advertise that they will match any lower price of their competitors. For example, if HP charges $350, then Dell will match that price and also charge $350.
What effect will matching prices have on profits (relative to the Nash equilibrium without price matching)?
Assuming HP and Dell can coordinate to maximize profits, HP's profit will change by $_______ and Dell's profit will change by _______.
These price strategies with corresponding profits are depicted in the payoff matrix to the right. HP's profits are in red and Dell's are in blue. Suppose HP and Dell are initially at the game's Nash equilibrium.
Then, HP and Dell advertise that they will match any lower price of their competitors. For example, if HP charges $350, then Dell will match that price and also charge $350.
What effect will matching prices have on profits (relative to the Nash equilibrium without price matching)?
Assuming HP and Dell can coordinate to maximize profits, HP's profit will change by $_______ and Dell's profit will change by _______.
answer
15;15
question
Consider a market with two firms, Kellogg and Post, that sell breakfast cereals. Both companies must choose whether to charge a high price ($4.00) or a low price ($2.50) for their cereals.
These price strategies, with corresponding profits, are depicted in the payoff matrix to the right. Kellogg's profits are in red and Post's are in blue.
What is the cooperative equilibrium for this game?
Is the cooperative equilibrium likely to occur?
The cooperative equilibrium
These price strategies, with corresponding profits, are depicted in the payoff matrix to the right. Kellogg's profits are in red and Post's are in blue.
What is the cooperative equilibrium for this game?
Is the cooperative equilibrium likely to occur?
The cooperative equilibrium
answer
The cooperative equilibrium is for Kellogg and Post to both choose a price of $4.00
Is unlikely to occur because charging $4.00 is not a dominant strategy.
Is unlikely to occur because charging $4.00 is not a dominant strategy.
question
How are games in game theory played?
In game theory,
How is game theory used in economics?
In economics,
In game theory,
How is game theory used in economics?
In economics,
answer
Rules determine what actions are allowable, players employ strategies to attain their objectives, and payoffs are the results of the interaction among the players' strategies.
The rules of the game include a firm's production function,
a strategy is a firm's actions to achieve a goal, and the payoffs are profits. OR The rules of the game include matters beyond a firm's control,a strategy is
a firm maximizing profits, and the payoffs are profits.
The rules of the game include a firm's production function,
a strategy is a firm's actions to achieve a goal, and the payoffs are profits. OR The rules of the game include matters beyond a firm's control,a strategy is
a firm maximizing profits, and the payoffs are profits.
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