Question

MicroEcon True/False

Problem 1: True/False/Uncertain (20 points) Please fully explain your answer. Points are awarded based on explanations. 1. (4 points) In a two-player game, a Nash equilibrium is the outcome that maximizes the sum of the players' payoffs. 2. (4 points) In a Nash equilibrium in a two-player game, both players must have selected a dominant strategy. 3. (4 points) Repeatedly playing the Prisoner's Dilemma may or may not result in a cooperative solution. 4. (4 points) In the models of oligopoly considered in class, the equilibrium price will be strictly lower if there are n + 1 firms than if there are n firms. 5. (4 points) In the models of oligopoly considered in class, consumers are no better off than in a perfectly competitive market.

Answer 1

1.FALSE

A Nash equilibrium results when every firm in an industry chooses a strategy that is optimal given the strategies chosen by its competitors.

2.TRUE

A dominant strategy equilibrium is always a Nash equilibrium.

3.TRUE

The prisoners' dilemma refers to a situation in which both players cooperate in determining a strategy.

4.TRUE

An oligopoly resists changes to the price. If one of them raises the price, then it will lose market share to the others. If it lowers its price, then the other firms will match the lower price, causing all the firms to earn less profit.here are significant barriers to entry for oligopoly.

5.FALSE

Oligopolies have advantages such as non-price competition, price stability, and the market mix. But it has a probability to collude. Firms in an oligopoly may collude to set a price or output level for a market in order to maximize industry profits. ... Oligopolists pursuing their individual self-interest would produce a greater quantity than a monopolist and charge a lower price.