Author Question: In the long run, a perfectly competitive firm can A) only make an economic profit. B) only make ... (Read 74 times)

Pineapplelove6 · **on:** Jun 29, 2018

In the long run, a perfectly competitive firm can

A) only make an economic profit.
B) only make zero economic profit.
C) only incur an economic loss.
D) make an economic profit, make zero economic profit, or incur an economic loss.

Question 2

What is a Nash equilibrium? Is this equilibrium necessarily the best outcome for the players? Give an example.

What will be an ideal response?

emsimon14 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

B

Answer to Question 2

John Nash proposed the concept of an equilibrium in a game where each player takes the best possible action given the action of other players. A Nash equilibrium is not necessarily the best one for the players. This result can be seen in the prisoners' dilemma. Typically the prisoners' dilemma is a game where two prisoners are given rules and payoffs to encourage them to confess to a crime. The prisoners, acting in their own self-interest, confess to the crime to minimize their jail time and so confession is the Nash equilibrium. But if the players can communicate with each other, they can improve their position. If they can communicate, they both deny the crime and so both wind up doing less time in jail.