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ID: 1188118 • Letter: #
Question
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"font-family:Tahoma, 'sans-serif';font-size:12pt;">1.
Now
suppose the two doctors play this game twice. Also, suppose each
doctor can play one of two strategies: it can play either
à ¢Ã¢â€š ¬Ã…“always charge the
low priceà ¢Ã¢â€š ¬ or
à ¢Ã¢â€š ¬Ã…“tit for
tatà ¢Ã¢â€š ¬Ãƒ ¢Ã¢â€š ¬Ã¢â‚¬
that is, it starts off charging the high price in the first period,
and then in the second period it does whatever the other doctor did
in the previous period. Write down the payoffs to Dr. Fine from the
following four possibilities:
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"line-height:115%;font-family:Tahoma, 'sans-serif';">a.
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Dr. Fine plays
à ¢Ã¢â€š ¬Ã…“always charge the
low priceà ¢Ã¢â€š ¬ when Dr. Feelgood also
plays à ¢Ã¢â€š ¬Ã…“always charge
the low price.à ¢Ã¢â€š ¬
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FIRST Period Payoffs SECOND Period Payoffs TOTAL Payoffs
Charges (high or low) Charges (high or
low) Fine Fine
Feelgood
Feelgood
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"line-height:115%;font-family:Tahoma, 'sans-serif';">b.
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Dr. Fine plays
à ¢Ã¢â€š ¬Ã…“always charge the
low priceà ¢Ã¢â€š ¬ when Dr. Feelgood plays
à ¢Ã¢â€š ¬Ã…“tit for
tat.à ¢Ã¢â€š ¬
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FIRST Period Payoffs SECOND Period Payoffs TOTAL Payoffs
Charges (high or low) Charges (high or
low) Fine Fine
Feelgood
Feelgood
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"MsoListParagraphCxSpMiddle">
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"MsoListParagraphCxSpMiddle">
FIRST Period Payoffs SECOND Period Payoffs TOTAL Payoffs
Charges (high or low) Charges (high or
low) Fine Fine
Feelgood
Feelgood
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à ¢Ã¢â€š ¬Ã…“In the long run,
there is no difference between monopolistic competition and perfect
competition.à ¢Ã¢â€š ¬
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"font-family:Tahoma, 'sans-serif';font-size:12pt;">Discuss
"font-family:Tahoma, 'sans-serif';font-size:12pt;">whether this
statement is true, false or ambiguous with respect to each of the
criteria listed under a, b, c, and d. Justify your
answers.
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a.
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The price charged to consumers
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b.
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The average total cost of production
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c.
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The efficiency of the market outcome
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d.
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The typical
firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s profit
in the long run
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