Predatory pricing to succeed in increasing long run profits

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Reference no: EM13833351

1. Why are cartels difficult to maintain?

a. Firms pay little attention to the decisions made by other firms.

b. Antitrust laws are difficult to enforce.

c. Cartel agreements are conducive to monopoly outcomes.

d. There is always tension between cooperation and self-interest in a cartel.

2. What is needed for predatory pricing to succeed in increasing long run profits?

a. barrier to prevent new entrants

b. only one consumer

c. no close substitutes initially

d. no more than two competiting firms

3. Consider two firms, Speedy and Hustle, which provide land transportation from the downtown area to the airport. The two firms decide their prices independently and simultaneously. If both firms decide to charge $20 per passenger, then each firm will serve 100 passengers per day at an average cost of $15 per passenger so their profit will be $5*100 = $500. If both firms decide to charge $28 per passenger, then each firm will serve 75 passengers per day at an average cost of $18 per passenger so their profit will be $10*75=$750. If one firm charges $20 while the other firm charges $28, the low-price firm will earn a profit of $900, and the high-price firm will earn a profit of $400 per day. What is the Nash equilibrium? Hint: construct a 2x2 payoff matrix first.

a. Both firms choose $28

b. One firm chooses $28 and the other chooses $20

c. Both firms choose $20

d. None of the above

4. Consider the following game in which two players simultaneously decide whether to adopt technology A or adopt technology B. If the players both adopt technology A then each will receive a payoff of 300. If they both adopt technology B then each will receive a payoff of 400. If they adopt different technologies then their payoffs will be zero. What is the Nash equilibria of this game? Hint: draw a 2x2 payoff matrix first.

a. Both adopt technology A

b. Both adopt technology B

c. Both adopt technology A and/or both adopt technology B (i.e. two equilibria)

d. None of the above

Reference no: EM13833351

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