How is a duopoly model with homogeneous products similar to a prisoners' dilemma game?
What will be an ideal response?
The firms in a duopoly with homogeneous products would be better off if they both charge a price above marginal cost. However, firms continue to charge a price slightly below the rival's price in order to gain market share. This price cutting continues until both firms charge a price equal to marginal cost. This situation is similar to a prisoners' dilemma game. In a prisoners' dilemma game, both the prisoners would be better off if neither of them confesses the crime. However, both end up confessing because they have to make decisions simultaneously without communicating with each other.
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The producer surplus on a unit of a good is the
A) difference between the marginal social benefit and the marginal social cost. B) number of dollars' worth of other goods and services forgone to produce this unit of the good. C) difference between the price of the good and the marginal cost of producing the good. D) difference between the total cost of the good and the marginal cost.
Velocity is defined as
A) P + M + Y. B) (P × M)/Y. C) (Y × M)/P. D) (P × Y)/M.
When does a kinked demand curve occur?
a. When competing oligopoly firms commit to match price cuts but not price increases b. When a natural monopoly raises its prices and provides an opportunity for market entry c. When competing oligopoly firms agree to increase prices at the same time and rate d. When one firm in a duopoly cuts prices and forces the exit of the other firm
Which of the following quotations best captures the idea of opportunity cost?
a. "Opportunity knocks but once." b. "Every choice involves a sacrifice." c. "Let's not ask for the moon; we have the stars." d. "Fools rush in where wise men fear to tread." e. "All that glitters is not gold."