1. Advertising is an important aspect of monopolistic competition and oligopoly

Question

1. Advertising is an important aspect of monopolistic competition and oligopoly because <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /?>

there are significant substitution possibilities in these industries.

price changes are not allowed.

brand distinction encourages consumer loyalty, increasing profits.

there is product homogeneity in these industries

2. Using the payoff matrix below, X and Y are

interdependent because their profits depend on an agreed upon price.

independent because their profits depend on their own price.

independent because their profits depend on an agreed upon price.

interdependent because their profits depend not just on their own price, but also on the other firm

there are significant substitution possibilities in these industries.

price changes are not allowed.

brand distinction encourages consumer loyalty, increasing profits.

there is product homogeneity in these industries

Explanation / Answer

1. there are significant substitution possibilities in these industries. 2. interdependent because their profits depend not just on their own price, but also on the other firm’s price. 3.present value of cooperation may exceed the one-time gains from deviating from the $35-$35 pricing strategy. 4. provides an advantage in the market. 5. not match price cuts or price increases. 6.The first player should choose 50 because this gives them an equal chance of being above or below the randomly selected number. The second player should choose a number one half that of the first player. 7. C 8. B 9. A

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