Week 9 Flashcards
describe oligopoly markets
what is dominant strategy?
a strategy that is best regardless of the other player’s strategy.
e.g. A will confess no matter what B’s strategy is
what is nash equilibrium
set of strategies such that neither player would like to change their action given the other player keeps their action; neither would like to deviate given other players are playing their strategy
Given B lies, A would still like to tell a lie; set of strateiges NOT OUTCOMES
strategies which are best replies to one another
‘equilibrium’ as neither would choose an alternative strategy
why is the outcome pareto ineffcient?
both could be made better off if they both denied
- a coordination problem
- not in self-interest to cooperate
describe incentives to cooperate
how will A and B play in repeated games
a: I will cooperate in the first round. If you cooperate as well, then i will reward you by cooperating in the second round. Or I will defect
B: I will cooperate in the first round. If you cooperate as well, then i will reward you by cooperating in the second round. Or I will defect
So if both firms don’t know when the game will end, they basically treat each round (month) as if the game is infinite and end up cooperating
what is a key feature of oligopoly?
tension between cooperation and self-interest
As a group, best off co-ordinating and acting like a monopolist
produce a small output and charge P>MC
but self-interest leads each firm to not cooperate
what is a duopoly
an oligopoly with 2 firms
consider 2 firms that supply mineral water
Aqua Pure (AP)
Mineral Spring (MS)
Production costs: MC=ATC =0
what does this look like on a graph?
consider 2 firms that supply mineral water
Aqua Pure (AP)
Mineral Spring (MS)
Production costs: MC=ATC =0
what will an efficient outcome look like?
consider 2 firms that supply mineral water
Aqua Pure (AP)
Mineral Spring (MS)
Production costs: MC=ATC =0
what would a monopoly outcome look like?
consider 2 firms that supply mineral water
Aqua Pure (AP)
Mineral Spring (MS)
Production costs: MC=ATC =0
what would a duopoly outcome look like?
consider 2 firms that supply mineral water
Aqua Pure (AP)
Mineral Spring (MS)
Production costs: MC=ATC =0
if they had an incentive to cheat then
Profit(MS) = 40 x $50 = $2000
Profit(before MS) = 30 x 60 = $1800
Profit (AP) = 30 x $50 = $1500
Profit (AP before) = 30 x $60 = $1800
Profit(MS) = 40 x $40 = $1600 Profit(AP) = 40 x $40 = $1600 Profit(Total) = $3200
show how duopoly/oligopoly outcomes lie between monopoly and efficient or competitive outcomes
what happens when there is an increase in firms in oligopoly?
ntiwhat is each firm’s dominant strategy and what is nash equilibrium?
If B advertises, P ‘s BEST RESPONSE IS TO advertise as Advertise = 80 > not advertise = 60
If B does not advertise, P’S BEST RESPONSE advertise as Advertise = 120 > not advertise = 100
Therefore, P’s dominant strategy is to advertise
If P advertises, B’S BEST RESPONSE IS TO advertise as Advertise = 80 > not advertise = 60
If P does not advertise, B’S BEST RESPONSE IS TO advertise as Advertise = 120 > not advertise = 100
B’s dominant strategy is to advertise
nash equilibrium is to both adertise and each make profit of 80m
what does a good and labour market look like?
labour is a
derived demand
marginal product of labour
marginal revenue of labour
describe demand for labour
calculate marginal product of labour, marginal revenue and marginal revenue product of labour
show demand curve for labour market
how is input demand linked to output supply?
what is the price of wage rate?
wage rate is the price of labour or the opportunity cost of leisure or not working
they will either demand leisure (not-work) or supply labour (work)
describe what happens to Ls when W rises by the substitution effect
describe what happens to Ls when W rises by the income effect
what is the net effect when wage rises to labour supply?
what is the effect of union on the labour market
what is honest, honest?
a cooperative outcome. While we like to cooperate
because of self-interest, both parties have an incentive to deviate, therefore is not nash equilibrium
describe grim strategy in terms of finite games
- co-operate if other player has always co-operated
- cheat if other player has cheated before
if A cheats everytime, B will Cheat
If A cheats once, B will cheat
If A has never cheated, B will co-operate
Therefore, if they play grim strategy, H,H will be nash equilibrium
