Oligopoly And Monopolistic Competition And Product Differentiation

660 words - 3 pages

Unit 8 Assignment: Oligopoly and Monopolistic Competition and Product Differentiation

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Unit Number: - 8
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Problem

Dr. Fine and Dr. Feelgood are the only two medical doctors offering immediate walk-in medical services in the town of Springfield. That is, they operate in a duopoly. Each doctor can charge either a high price or a low price for a standard medical visit. The accompanying matrix shows their payoffs, in profits per patient (in dollars), for any choice that the two doctors can make.
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1. Suppose the two doctors play a one-shot game—that is, they interact only once and never again. What will be the ...view middle of the document...

Fine plays “always charge the low price” when Dr. Feelgood plays “tit for tat.”

|FIRST Period |Payoffs |SECOND Period |Payoffs |TOTAL Payoffs |
| |Charges | | |Charges | | |
| |(high or low) | | |(high or low) | | |
|Fine | | |Fine | | | |

c. Dr. Fine plays “tit for tat” when Dr. Feelgood plays “always charge the low price.”

|FIRST Period |Payoffs |SECOND Period |Payoffs |TOTAL Payoffs |
| |Charges | | |Charges | | |
| |(high or low) | | |(high or low) | | |
|Fine | | |Fine | | | |

d. Dr. Fine plays “tit for tat” when Dr. Feelgood also plays “tit for tat.”

|FIRST Period |Payoffs |SECOND Period |Payoffs |TOTAL Payoffs |
| |Charges | | |Charges | | |
| |(high or low) | | |(high or low) | | |
|Fine | | |Fine | | | |

3. “In the long run, there is no difference between monopolistic competition and perfect competition.”

Discuss whether this statement is true, false or ambiguous with respect to each of the criteria listed under a, b, c, and d. Justify your answers.

a. The price charged to consumers

b. The average total cost of production

c. The efficiency of the market outcome

d. The typical firm’s profit in the long run

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References:

|Microeconomics: Unit 8 Assignment: Game Theory and Perfect Competition and monopolistic competition in the Long run |
|Content (15 points) |Points Possible |Points Earned |
|Game TheoryCorrectly calculated the non-cooperative Nash equilibrium for one-shot game. |3 | |
|Two-shot game with two strategies: “always charge the low price” or “tit...

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