Micro Economic Issues

What is the definition of a dominant strategy?

a strategy that is optimal independent of the other player’s decision.

What is the definition of a reaction curve?

a curve that relates the optimal quantity produced by one firm in an oligopoly to the optimal quantity produced by the second firm.

In the game of the Prisoner’s Dilemma, the dominant cooperative equilibrium strategy is what?

Both players keep silent.

What does the kinked demand curve model assume?

Demand is price inelastic if there is a price cut

or

- Demand is price elastic if there is a price increase

( The kinked demand curve assumes that decisions to increase price will not be followed by rivals , so demand is price elastic; however, decisions to reduce price will be followed, so demand is price inelastic)

5)In monopolistic competition-

-There is entry and exit in the long run

(There are many firms producing differentiated products; each firm faces a downward slopping demand curve; there is entry and exit in the long run)

In a cartel

firms act together as if they were a monopolist

( In a cartel there are a few firms acting together as if they were a monopolist; they profit maximize together but an individual firm may be able to make more profit acting differently)

In oligopoly

a few firms dominate the market

In game theory when a business chooses the best of the worst outcomes this is called:

A maxi-min strategy

A dominant strategy in oligopoly occurs when

whichever assumptions are made the same strategy is chosen

Growth maximization without making a loss occurs at the highest output where:

Average Revenue = AC

Sales Revenue Maximization occurs when

MR=0 - when MR =0 there is not extra revenue possible so TR is maximized)

( thus approach does not focus on costs, managers are simply interested on the value of sales. But in reality a certain level of profits might need to be made)

A business will produce the highest output possible without making a...