Oligopoly Cheat Sheet
Tuesday, November 12, 2019
Monday, November 11, 2019
2019 Micro Set 1, FRQ # 3, Oligopoly
1st - Underline Patricks Pie's numbers
and square-in Dee's Pizza
2nd - Do a word chart
a) What actions maximize the combined total profits for Patricks pie and Dee's pizza?
b) Conditional on your answer in part (a), does either Patrick or Dee have an incentive to cheat on this combination of actions that maximize the combined total profits? Explain using numbers from the payoff matrix.
c) Does Patrick have a dominant strategy?
d) Identify the Nash Equilibrium or equilibria actions for this game.
Nash Equilibrium = When neither player has an incentive to change its position
*** If neither player has a dominant strategy
there can be two Nash Equilibria
No Nash Equilibria
e) Ignoring anti-trust considerations, suppose that Patrick pays Dees $20 to Stay-Out
i) Redraw the payoff matrix showing how the $20 payment to Dee affects the payoffs.
ii) Identify the Nash Equilibrium
Sunday, November 10, 2019
2019 Micro Set 2, FRQ #3, Oligopoly
a) Is Jackpot's dominant strategy to close at 6pm or to close at 9pm, or does it have no dominant strategy.
b) Suppose jackpot chooses to close at 6pm and Boulevard chooses no delivery. Is this the profit-maximizing action by Boulevard? Explain using values from pay-off matrix.
c) How much profit will Boulevard earn in the Nash Equilibrium?
Understand that The Nash Equilibrium,, implies that both participants are in their best locations given the other participants choice.
1st - Understand that Jackpot will always close at 6pm = dominate strategy
2nd - Understand that Boulevard will choose to Deliver as that maximizes profit.
Boulevard will Deliver as $30 > $20 - Boulevard's profit is $30 in the Nash Equilibrium
d) Suppose the two companies merge with two locations and the same pay-offs. What strategy would the new company use to maximize its combined profits?
Why?The payoff with the largest combined profit for two locations.
Wednesday, November 6, 2019
2019 Micro Set 2, FRQ #2
a) Using the graph, identify the following
i) The after-tax price and quantity.
ii) The area representing the total tax revenue received by the government.
Understand that the vertical distance between the two supply curves is the amount of the tax.
b) Now assume that the demand for hats is perfectly inelastic at Q3, while supply and per-unit tax remains unchanged.
i) Will the after tax price paid by consumers be higher, lower, or the same compared to the price in your answer in part (a) (i)?
ii) Will the total tax revenue received by the government be higher, lower or the same compared to the price in your answer in part (a) (i)? Explain.
c) If the demand for hats remain perfectly inelastic at Q3, and the per-unit sales tax is reduced, will producer surplus increase, decrease, or remain the same? EXPLAIN.
*Producer Surplus is the area below the price
and above the supply curve
Wednesday, October 30, 2019
Sunday, October 27, 2019
Tuesday, October 1, 2019
2019 Micro Set 2, FRQ #1
a) Draw a correctly labeled graph for Gigantic and show each of the following.
(i) Price Profit maximizing
(ii) Profit max quantity
(iii) ATC curve
(iv) Consumer surplus
b) Demand for prescription drugs increases and Gigantic hires its workers in a perfectly competitive labor market.
One point is earned for stating that Gigantic Pharmaceutical Corporation’s demand for warehouse workers will increase and for explaining that the marginal revenue product of labor increases because of the increase in the product price.
ii) What happens to the wage rate paid by Gigantic to its warehouse workers and the number of warehouse workers it hires?
One point is earned for stating that the wage rate Gigantic pays to its warehouse workers will not change and the number of workers hired will increase.
(The wage rate doesn't change because Gigantic's product is protected by a patent and there is no competition in the production of Gigantic's drug. It is the only one that can produce and sell it,, so as the price goes up the market is unaffected so only the demand for Gigantic's drug increases. No competition for workers means no increase in wages in the market or for Gigantic's workers.)
c) After Gigantic's patent expires another firm enters the the market and makes an identical drug and sells it for a lower price.
i)What will happen to Gigantic's producer surplus?
Producer surplus is defined as the area below the price but above the supply curve. As the price falls the area of producer surplus decreases.
ii) What will happen to the consumer surplus in the prescription drug market? Explain.
Consumer surplus is defined as the area above the price but below the demand curve and as the price of the good decreases in the market consumer surplus increases.