Blog

Antitrust authorities have a difficult time with network goods because:

Discrimination by employers:

Table: Russia, Saudi PayoffsRussiaCooperateCheatSaudi ArabiaCooperate($800, $800)($400, $1,000)Cheat($1,000, $400)($600, $600)Suppose that the oil market is dominated by two large firms, Saudi Arabia and Russia. Both Saudi Arabia and Russia have two choices or strategies: cooperate by cutting back production or cheat by increasing production. The payoff table shows the potential revenues associated with each firm’s strategies. For instance, if Saudi Arabia cheats and Russia cooperates, the payoff to Saudi Arabia is $1,000 and the payoff to Russia is $400. What are Saudi Arabia’s best strategy and associated payoff if Russia cheats?

In the town of Merryweather, citizens are very serious about their Christmas light displays. Consider each scenario and the type of good described.

Which is an example of tying?

Figure: Cleaners’ WagesHow many workers will this firm hire at a wage of $29?

An insurance company can prevent the adverse-selection death spiral by requiring purchasers to have a medical exam. This will allow the insurance company to:

Figure: Demand 2Two firms in an industry act as a cartel, with each firm agreeing to charge a price of $16 and sell 2 units of output. If one of them cheats and produces 2 more units of output, the cheating firm’s total revenue increases by _____ and the other firm’s total revenue decreases by _____.

A monopolistically competitive firm is able to charge P > MC because:

Figure: Demand 3 If the two-firm oligopoly facing the market in this diagram is currently producing at the competitive output level and one of the firms reduces output by 4 units, the firms’ profits would increase from: