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