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# Price and output

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1) The following matrix shows the payoffs for an advertising game between Combra and Paka. The
firms can choose to advertise or to not advertise. Numbers in the matrix represent profits; the first number in each cell is the payoff to Combra. (Numbers in millions.)
Donâ??t Advertise (-500, 5000) (1000, 1000)

a. Is this a Prisonerâ??s Dilemma? (Yes or NO).Explain why this would be described as a Prisoner's Dilemma game.
b. Is there a dominant strategy? (Yes or NO). Explain the probable outcome of this game.

2.

a. What is the firmâ??s Total Revenue ?
b. What is the Total Cost?
c. What is the firmâ??s Total Profits?
d. If the above monopolist were to behave like a Monopolistically competitive firm (operating in the long run), determine its Price and output.

3.Suppose that the market demand for mountain spring water is given as follows:
P = 1200 â?" Q. Mountain spring water can be produced at no cost. What is the profit maximizing level of output and price of a monopolist?

4.When one automaker begins offering low cost financing or rebates, others tend to do the same.
What two oligopoly models might offer an explanation of this behavior?

https://brainmass.com/economics/output-and-costs/price-and-output-318227

#### Solution Preview

1. Yes, the game is a prison's dilemma. It resembles a prison's dilemma game because

1) it has one nash equilibrium
2) it is symmetric
3) the most optimal outcome is not the Nash Equilibrium