EC120 Lecture Notes - Lecture 14: Nash Equilibrium, Eurocopter Ec120 Colibri, Effective Demand

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14 Feb 2018

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Only a few sellers (2 or more) If there are two sellers, it is a duopoly. Firms cannot enter/ exit the market- entry barriers are important. Firms act strategically: choose pricing and/or production in response to choices of other firms. Applied game theory: study of how people/ firms behave in strategic situations, game theory is critical to understand oligopoly. Now assume there are only two sellers (duopoly) Wednesday november 1st 2017: monopoly outcome maximizes total profit, sellers would need to agree on division of output. Firms agreeing on production or price are in collusion, and may be defined as a cartel. Strategic analysis- given the choice of firm a, what production maximizes profit for firm b: take as given the production choice for firm a, shifts the effective demand curve for firm b. Nash equilibrium: when economic actors are choosing their best strategy given the strategies of others. Will two firms each producing half of monopoly production be an equilibrium.

Related Questions

1) When a utility charges homeowners less on a per-unit basis than corporate users it is practicing:

a) first-degree price discrimination

b) second-degree price discrimination

c) third-degree price discrimination

d) markup pricing

e) tying

2) when an electrical utility charges higher prices during the day than at night it is practicing:

a) peak-load pricing

b) first-degree price discrimination

c) second-degree price discrimination

d) third-degree price discrimination

e) fourth-degree price discrimination

3) Gliberace's Fashion Accessories of Las Vegas produces gemstone-encrusted formal wear for sale in Los Angeles and San Francisco subject to total cost TC = 100 + 5(Q_LA + Q_SF). Demand for Gliberace's stones in the two cities is given by Q_LA = 70 - 2P_LA and Q_SF = 55 - P_SF. If Gliberace price discriminates between the two cities, how many stones will it sell in L?

a) 30

b) 36

c) 38

d) 43

e) 48

4) Game theory is useful for understanding oligopoly behavior because:

a) there are so many firms in an oligopoly that all are price takers

b) firms must differentiate their products if they are to remain in business

c) firms recognize that because there are only a few firms mutual interdependence is important

d) without it firms would not be able to maintain cartel agreements

e) it allows firms to develop greater monopoly power

5) A feasible strategy set is:

a) all actions with a nonzero probability of occurring

b) only actions that have a 50 percent or greater probability of occurring

c) actions that result in positive profits for the firm

d) actions hat a decision-maker is willing to take

e) the outcome that the decision-maker chooses

6) In a two-player game in which each player has four options how many outcomes can there be:

a) 1

b) 4

c) 8

d) 16

e) 64

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EC120 Lecture Notes - Lecture 14: Nash Equilibrium, Eurocopter Ec120 Colibri, Effective Demand

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