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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.
If saffron producers reduce the price of saffron, what will happen to total revenue as a result? Will marginal revenue be positive, zero, or negative?
What is Sally's total revenue when she chooses to sell 6 shells? What is the marginal revenue Sally receives from deciding to sell a 6th shell?
Explain why consumers might reject a superior product for an inferior one in a market like this.
Why does the profit-maximizing strategy of a firm with market power create a deadweight loss?
What is the profit-maximizing output level for a firm with market power?
What are the characteristics of a natural monopoly? Why is it efficient for society for a natural monopoly to produce all the output of an entire industry?
How does the marginal revenue received by a seller depend on the price elasticity of demand? Explain your answer.
What is the firm's marginal revenue? Find the firm's profit-maximizing quantity where MR = MC. Find the firm's profit-maximizing price and profit.