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Flashcards in Week 9 Deck (32)
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1
Q

describe oligopoly markets

A
2
Q

what is dominant strategy?

A

a strategy that is best regardless of the other player’s strategy.

e.g. A will confess no matter what B’s strategy is

3
Q

what is nash equilibrium

A

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

4
Q

why is the outcome pareto ineffcient?

A

both could be made better off if they both denied

  • a coordination problem
  • not in self-interest to cooperate
5
Q

describe incentives to cooperate

A
6
Q

how will A and B play in repeated games

A

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

7
Q

what is a key feature of oligopoly?

A

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

8
Q

what is a duopoly

A

an oligopoly with 2 firms

9
Q

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?

A
10
Q

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?

A
11
Q

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?

A
12
Q

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?

A
13
Q

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

A

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
14
Q

show how duopoly/oligopoly outcomes lie between monopoly and efficient or competitive outcomes

A
15
Q

what happens when there is an increase in firms in oligopoly?

A
16
Q

ntiwhat is each firm’s dominant strategy and what is nash equilibrium?

A

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

17
Q

what does a good and labour market look like?

A
18
Q

labour is a

A

derived demand

19
Q

marginal product of labour

A
20
Q

marginal revenue of labour

A
21
Q

describe demand for labour

A
22
Q

calculate marginal product of labour, marginal revenue and marginal revenue product of labour

A
23
Q

show demand curve for labour market

A
24
Q

how is input demand linked to output supply?

A
25
Q

what is the price of wage rate?

A

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)

26
Q
A
27
Q

describe what happens to Ls when W rises by the substitution effect

A
28
Q

describe what happens to Ls when W rises by the income effect

A
29
Q

what is the net effect when wage rises to labour supply?

A
30
Q

what is the effect of union on the labour market

A
31
Q

what is honest, honest?

A

a cooperative outcome. While we like to cooperate

because of self-interest, both parties have an incentive to deviate, therefore is not nash equilibrium

32
Q

describe grim strategy in terms of finite games

A
  1. co-operate if other player has always co-operated
  2. 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