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Author Question: Game theory is a tool for studying competitive behavior between firms in monopolistic competition ... (Read 37 times)

fbq8i

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on: Jun 29, 2018
Game theory is a tool for studying competitive behavior between firms in monopolistic competition because of the mutual interdependence among the firms.
 
  Indicate whether the statement is true or false

Question 2

Because the price of a diamond is much greater than the price of a gallon of water, the consumer surplus from diamonds is greater than the consumer surplus from water. Is the previous analysis CORRECT? Explain your answer.
 
  What will be an ideal response?


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livaneabi

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Reply #1 on: Jun 29, 2018
Answer to Question 1

FALSE

Answer to Question 2

No, the analysis is incorrect. The paradox of value points out the error. Diamonds are scarce, so they have a high price and a high marginal utility. Water is abundant, so it has a low price and a low marginal utility. But the total utility from water (vastly) exceeds that from diamonds and so the consumer surplus from water (vastly) exceeds that from diamonds.


fbq8i

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Reply 2 on: Jun 29, 2018
Wow, this really help

mochi09

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Reply 3 on: Yesterday
Thanks for the timely response, appreciate it

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