econ final
Suppose Grandis and Immanis agree to collude by both charging the price a monopolist would charge and each producing half of the monopolist's profit-maximizing level of output. Grandis, however, decides to cheat on the collusive agreement. If Grandis charges $1 less than the monopoly price while Immanis continues to charge the monopoly price, then Grandis will earn a profit of _____ per day.
$80
A dominant strategy exists if
a player has a strategy that yields the highest payoff regardless of the other player's choice.
Savannah is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a profit of $1,000. If Savannah cuts her price to $2.90 and Sam continues to charge $3, then Savannah's profit will be $1,350, and Sam's profit will be $500. Similarly, if Sam cuts her price to $2.90 and Savannah continues to charge $3, then Sam's profit will be $1,350, and Savannah's profit will be $500. If Sam and Savannah both cut their price to $2.90, then they will each earn a profit of $900. The clear outcome of this game is that:
both Savannah and Sam will cut their price
A coalition of firms who agree to restrict output for the purpose of earning an economic profit is called a(n)
cartel
Savannah is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a profit of $1,000. If Savannah cuts her price to $2.90 and Sam continues to charge $3, then Savannah's profit will be $1,350, and Sam's profit will be $500. Similarly, if Sam cuts his price to $2.90 and Savannah continues to charge $3, then Sam's profit will be $1,350, and Savannah's profit will be $500. If Sam and Savannah both cut their price to $2.90, then they will each earn a profit of $900. For Sam, cutting her price to $2.90 per gallon is a:
dominant strategy.
Savannah is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a profit of $1,000. If Savannah cuts her price to $2.90 and Sam continues to charge $3, then Savannah's profit will be $1,350, and Sam's profit will be $500. Similarly, if Sam cuts her price to $2.90 and Savannah continues to charge $3, then Sam's profit will be $1,350, and Savannah's profit will be $500. If Sam and Savannah both cut their price to $2.90, then they will each earn a profit of $900. For Savannah, keeping her price at $3 per gallon is a:
dominated strategy
The reason that the prisoner's dilemma presents a dilemma is that:
each player has an incentive to play his or her dominant strategy, but when both choose the dominant strategy each player has a lower payoff than if they both had chosen the dominated strategy.
Cartel agreements are difficult to sustain because
it's a dominant strategy for each cartel member to cheat on the cartel agreement.
Savannah is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a profit of $1,000. If Savannah cuts her price to $2.90 and Sam continues to charge $3, then Savannah's profit will be $1,350, and Sam's profit will be $500. Similarly, if Sam cuts her price to $2.90 and Savannah continues to charge $3, then Sam's profit will be $1,350, and Savannah's profit will be $500. If Sam and Savannah both cut their price to $2.90, then they will each earn a profit of $900. In this situation, the Nash equilibrium yields a:
lower payoff than each would receive if each played her dominated strategy.
Most cartels cease to be effective because
of the incentive to cheat on the cartel agreement.
The three elements of a game are
players, strategies, payoffs
Suppose the market for bottled water is served by two oligopolists. If they reach an agreement to restrict production and charge a price above marginal cost, then
their agreement is likely to eventually collapse.
In the Nash equilibrium of a prisoner's dilemma:
there is unrealized opportunity for both players to gain.