Question

1. 1) True or False. If False, supply a reason.

   1. a) The Nash equilibrium is a strategy profile where both players’ payoffs can improve by

      changing their strategies.

   2. b) In an oligopoly, there are a few sellers who can collude and raise prices

   3. c) In the prisoners’ dilemma, both players get their highest payoff by pursuing their own self-

      interest

   4. d) In monopolistic competition, each firm generates a deadweight loss, but end up with positive

      profits.

   5. e) In monopolistic competition, firms advertise to capture market share.

Answer 1

a) False, a Nash equilibrium is a strategy where none of the player will change the strategy unilaterally or they will be facing a loss.

b) True, oligopoly can see a cartel formation.

c) False, in a prisoners dilemma both the players follow their own self interest and end up getting a far worse payoff than they would if they collude in the market.

d) False, there is free entry and exit in the market, that reduces the profit and loss and all the firm only break even in the long run.

e) true,