Answer the 12 Critical Thinking Questions
Running head: CRITICAL THINKING ASSIGNMENT 5
Critical Thinking Assignment 5
Tyrell S. Grant
Salvatore 10: Discussion Question 3
What is the difference between limit pricing and contestable markets?
Salvatore 10: Discussion Question 8
In what way does OPEC resemble a cartel? How successful is it?
Salvatore 10: Problem 1
Find the Herfindahl index for an industry composed of ( a) three firms— one with 70 percent of the market, and the other two with 20 and 10 percent of the market, respectively; (b) one firm with a 50 percent share of the market and 10 other equal-sized firms; (c) 10 equal- sized firms.
NOTE: Use 70 instead of 70% in your Herfindahl index calculation (p.427)
Salvatore 10: Problem 14
Since underprice leadership by the dominant firm, the firms in the industry following the leader behave as perfect competitors or price takers by always producing where the price set by the leader equals the sum of their marginal cost curves, the followers break even in the long run. True or false? Explain.
Froeb et al 10: IP 10-4
Five Forces and the Airline Industry Examine the U. S. passenger airline industry using the Five Forces. Is this an attractive industry? Why or why not?
Salvatore 11: Discussion Question 11
Do the duopolists in a Cournot equilibrium face a prisoners’ dilemma? Explain.
Salvatore 11: Discussion Question 12
How did the 1971 law that banned cigarette advertising on television solve the prisoners’ dilemma for cigarette producers?
NOTE: Explain first the prisoners' dilemma for cigarette producers before 1971 law. Use table 11-4, replace Low Price with Advertise, and High Price with Don't Advertise. You would see this is similar to the prisoners' dilemma"
Salvatore 11: Problem 2
From the following payoff matrix, where the payoffs are the profits or losses of the two firms, determine (a) whether firm A has a dominant strategy, (b) whether firm B has a dominant strategy, (c) the optimal strategy for each firm, and (d) the Nash equilibrium, if there is one.
Salvatore 11: Problem 6
Explain why the payoff matrix in Problem 1 indicates that firms A and B face the prisoners’ dilemma. The problem 1 payoff matrix is as follows.
Salvatore 11: Problem 10
Given the following payoff matrix, (a) indicate the best strategy for each firm. (b) Why is the entry-deterrent threat by firm A to lower the price not credible to firm B? (c) What could firm A do to make its threat credible without building excess capacity?
NOTE: P10(a):The strategies for firm A are low price and high price and the strategies for firm B are enter and don't enter. What is the best (optimal) strategy for each firm?
P10(b) is asking whether firm A would use the low price as a threat if firm B enters?
Froeb et al 15: IP 15-4
The following represents the potential outcomes of your first salary negotiation after graduation: Assuming this is a sequential move game with the employer moving first, indicate the most likely outcome. Does the ability to move first give the employer an advantage? If so, how? As the employee, is there anything you could do to realize a higher payoff?
Froeb et al 15: IP 15-5
Every year management and labor renegotiate a new employment contract by sending their pro-posals to an arbitrator who chooses the best pro-posal ( effectively giving one side or the other $ 1 million). Each side can choose to hire, or not hire, an expensive labor lawyer ( at a cost of $ 200,000) who is effective at preparing the proposal in the best light. If neither hires lawyers or if both hire lawyers, each side can expect to win about half the time. If only one side hires a lawyer, it can expect to win three- quarters of the time. (a) Diagram this simultaneous move game. (b) What is the Nash Equilibrium of the game? (c) Would the sides want to ban lawyers?
NOTE: Part of the payoff matrix looks like the table on sheet P15-5
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