Assignment:
INSTRUCTIONS: Answer the following question. Please write legibly, put your name at the top of the assignment, label each questions and staple multiple pages together.
1.Give a real world example of an oligopoly market and justify your answer.
2.Disney and Warner Brothers must decide when to release their next superhero films. The revenues received by each studio depend in part on when the other studio releases its film. Each studio can release its film at Thanksgiving or at Christmas. The revenues received by each studio, in millions of dollars, are depicted in the payoff matrix below. Disney's release dates are the columns and Warner Brothers' are the rows. The payoffs (in millions of dollars) are marked with D for Disney and W for Warner Brothers.
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Thanksgiving release
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Christmas release
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Warner Brothers
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Thanksgiving release
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D: $100
W: $80
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D: $95
W: $105
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Disney
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Christmas release
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D: $90
W: $85
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D: $85
W: $115
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a.What is the dominant strategy for Warner Brothers?
b.What is the dominant strategy for Disney?
c.What will be the Nash equilibrium?
d.What are the payoffs of the Nash equilibrium above?
3.Two firms, Firm A and Firm B, are duopolists. They face the market demand below. The firms face no fixed costs so the average total cost curve is the same as the marginal cost curve.
a. If the firms don't collude, together they produce at the perfectly competitive long-run (efficient) output, producing 200 units each. Find the total market quantity, the price and profits for each firm.
b.If the firms collude, the highest profit they can make is by jointly producing the monopoly quantity. Find the market (monopoly) quantity, the quantity produced by each firm (half the monopoly quantity), the (monopoly) price, and the total profits for each firm.
c. Now we will show that the firms have an incentive to cheat and produce an additional 50 units. Find the market quantity, price and profits of the two firms if one firm produces half the monopoly quantity (the firm quantity you found in part b) and the other firm produces an additional 50 units.
d.Fill in the payoff matrix with the firms' profits from a - c above. Firm A's actions are the columns and Firm B's actions are the rows.
Firm A
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Monopoly Quantity
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Not Monopoly Quantity
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Firm B
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Monopoly Quantity
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A: $
B: $
(Part b)
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A: $
B: $
(Part c, Firm A produces more)
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Not Monopoly Quantity
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A: $
B: $
(Part c, Firm B produces more)
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A: $
B: $
(Part a)
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e. Find the two Nash equilibria.