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Strategic Decision Making in Oligopoly Markets

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Thomas Schelling, an expert on nuclear strategy and arms control, observed in his book The Strategy of Conflict (Cambridge, MA: Harvard University Press, 1960), "The power to constrain an adversary depends upon the power to bind oneself." Explain this statement using the concept of strategic commitment.

In the 2000 US presidential contest, Al Gore was advised by his strategists to wait for George W. Bush to announce his vice presidential running mate before making his own decision on a running mate. Under what circumstances would Gore be better off giving Bush a head start on putting together his presidential ticket? What kind of strategic situation is this?

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In order to obtain the most desirable outcome, a person or company must be willing to threaten to pursue a less desirable one. For example, a company which offers loans could lower its rate if its rivals do. It really wants to keep rates high, but it can't do that without the threat of charging lower ones. Warnings and assurances are effective for coordinating behavior when there are multiple Nash equilibria. (Nash equilibria, or saddle points, occur when neither player can improve his ...

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Elasticity and Market Structure

Please refer attached file for graphs.

1. Compute the approximate elasticity of demand from the following data:

Initial Situation:Price: $23 Quantity: 11.5
New Situation: Price: $20 Quantity: 13.5

a. .87
b. 1.15
c. 1.5
d. 5.0

2. Refer to the graph. If market price increases from $5 per unit to $6 per unit, a profit maximizing perfectly competitive firm will:

a. increase output from 650 to 750
b. decrease output from 750 to 650
c. continue to produce 650 units
d. produce 850 units of output

3. Refer to the table. Between $1.60 and $1.80, demand is:
a. elastic
b. unit elastic
c. inelastic
d. perfectly elastic

4. Which of the following statements is true about a downward-sloping demand curve that is a straight line?
a. the slope and the elasticity are the same at all points
b. the slope remains the same, but elasticity rises as you move down the demand curve
c. the slope remains the same, but elasticity falls as you move down the demand curve
d. the slope and the elasticity fall as you move down the demand curve

5. A market has the following characteristics: There is strategic decision making, output is somewhat restricted, there are few firms and some long run economic profits are possible. This market is:

a. a monopoly
b. an oligopoly
c. monopolistically competitive
d. perfectly competitive

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