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If there are lots of pumpkin growers in town so that the pumpkin industry is competitive, how many pumpkins will be sold, and what price will they sell for?
How much profit will each producer earn? What will be the total profit of the cartel? Is Pierre likely to agree not to produce any soufflés?
Calculate Pierre's profit. How much did he gain by cheating? Calculate Gaston's profit. How much did Pierre's cheating cost him?
What are the characteristics of a monopolistically competitive firm? Why do firms in monopolistic competition not reach the perfectly competitive equilibrium?
What does the residual demand curve tell us about a firm's output in Cournot competition? What causes the first-mover advantage in Stackelberg competition?
Solve for the price AT&T should charge to maximize profit. Solve for the price Verizon should charge to maximize its profit.
Suppose that the cable company begins to offer slightly faster service than the telephone company, which alters demands for the two products.
What is the economic order quantity? What is the economic order quantity?
Find the Bertrand equilibrium prices and quantities for these two competitors. Solve for Babette's profit-maximizing price, quantity, and profit.
What differentiates game theory from singleagent problems? How does the existence of multiple Nash equilibria complicate the solution to an economic game?
Why might a player pursue a mixed strategy? Why is the maximin strategy considered a conservative strategy?
How can side payments be beneficial to both players in a two-player game? Describe the relationship between credibility and entry deterrence to a market.
What is the likely outcome of this game? Does your instructor pay the entire $500 for your silence?
Consider the Cournot-Stackelberg competing islands of Penang and Grenada discussed in the previous problem. What will happen to Grenada's and Penang's output?
Use backward induction to find the equilibrium outcome for this game. Is the equilibrium consistent with your experience?
Draw the extensive form of the game between Crazy Eddie and Loopy Larry. Assume that Crazy Eddie moves first and can choose a high price or a low price.
Determine the relevant payouts for all of the possible outcomes, and draw the extensive form of the game Jen and the lawyer are playing.
Draw the extensive form of this modified game and solve for the equilibrium outcome. Are the equilibrium outcomes the same in both cases?
What is the benefit of using present discounted value analysis? How can you calculate the interest rate associated with a given set of assets?
When will an investment's net present value be positive? Given its sign, should you invest in this project?
How can expected value be used to evaluate risky investments? Why do we consider diversification a key function of insurance markets?
Suppose that you have 100 bunnies, and that because of your successful animal husbandry. How many bunnies will you have at the end of two years?
If your bank pays you 3% annual interest, what will your account balance be upon retirement? What will your account balance be upon retirement?
Find the profit-maximizing price by plugging the ideal quantity back into the demand curve.
Using your knowledge about the price elasticity of demand, explain why the marginal revenue a firm with market power receives must always be less than price.