What is game theory and what light does it shed on the duopolists' dilemma?
What will be an ideal response?
Game theory is a tool economists use to analyze the behavior of oligopolistic firms because game theory is a tool to study strategic behavior. Game theory shows that because these firms are interdependent, the decisions they make to promote their own self-interest can wind up harming all the firms. Thus the duopolists' dilemma is illustrated using game theory: Firms looking to earn for themselves the maximum possible profit can wind up earning less profit than if they had behaved less self-interestedly and more cooperatively.
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Suppose the exchange rate is initially set at 120 yen per dollar and increases to 140 yen per dollar. This would be expected to cause the price of Japanese goods in the U.S. economy to
A. decrease. B. change in a manner that cannot be determined without additional information. C. remain the same since domestic demand remains the same. D. increase.
Explain why member firms of a cartel like OPEC have incentives to agree to a low cartel production level and then produce more than its quota
What will be an ideal response?
A complete accounting of the costs of the tax system would not include _____
a. compliance costs b. legislative costs c. administrative costs d. political costs
Natural oligopolies occur when
a. the government establishes a market with a few large producers b. the market output could be produced at a higher cost by several large firms rather than many small firms c. there are no barriers to entry d. the total market output could be produced at a lower cost by several large firms rather than many small firms e. one large firm can produce the total market output at a lower cost than several smaller firms could