both Norm and Pete At a price of $8, the marginal revenue of a monopolistically
ID: 1124443 • Letter: B
Question
both Norm and Pete
At a price of $8, the marginal revenue of a monopolistically competitive firm is $5. If the marginal cost is $7 and average total cost is $4, what should the firm do to maximize profits?
The firm should increase output and decrease price.
The firm should increase both output and price.
The first should reduce output and increase price.
The firm reduce both output and price.
Firms A and B are within an oligopolistic market. Firm A lowers the price for one of their goods and in retaliation, Firm B decides to set a policy that will keep the price for one of its goods lower than Firm A's. Based on the given information, which statement is true?
Firm B has higher variable costs.
Firm A will have higher labor costs.
Firm B is engaging in a grim trigger response.
Firm B is engaging in a trembling hand trigger response.
(Table) Referring to the game theory table for Natasha and Marla (which shows Natasha's profits in plain text and Marla's profits in italic), who has a dominant strategy, Natasha or Marla?Marla, but not Natasha both Natasha and Marla neither Natasha nor Marla Natasha, but not Marla
Explanation / Answer
1. Dominant strategy is a strategy for a player i.e. best response to all strategy profile of other player.
Neither Natasha nor Marla has the dominant strategy because none of them is earning more profit by choosing one strategy.
2. both Norm and Pete has the dominant strategy of choosing low price because they both are able to earn more profit from choosing low price irrespective of decision of other.
3. The firm reduce both output and price.
Profit is maximized where MR = MC and in this case MC > MR so output should be reduces so that it becomes equal to MR. So, output should be reduced.
4. Casual, Fancy = (4, 8)
Nash equilibrium is a strategy profile such that for each player given strategy, it is best response. Nash equilibrium is a set of strategies such that each player is doing their best given the strategy of other player.
If Mario chooses Casual then best response of Isabelle is to choose Fancy.
If Isabelle chooses Fancy then best response of Mario is to choose Casual.
So, (Casual; Fancy) is the nash equilibrium.
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