HW10 - CHP 14 (Due: 11/23)

A market comprised of only two firms is called a

duopoly

Collusion between two firms occurs when

firms explicitly or implicitly agree to adopt a uniform business strategy.

The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called

game theory.

All of the following are characteristics of game theory except

independence among players

A dominant strategy

is one that is the best for a firm, no matter what strategies other firms use.

A Nash equilibrium is

reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group.

Suppose we want to use game theory to analyze how an oligopolist selects its optimal price. The cells of the payoff matrix show

the profit that each producer can expect to earn from every combination of strategies by the firms in the market.

The prisoner's dilemma illustrates

why firms will not cooperate if they behave strategically.