What is the dominant strategy for Bob? Donna? Which strategy ...

[oliviahorn72]

What is the dominant strategy for Bob? Donna? Which strategy should each player choose to maximize the potential gain? What do you think the outcome of this game will be? Carefully explain your answers.
 
  What will be an ideal response?

Question 2

What is the shape of a monopolist's demand curve and marginal revenue curve?
 
  What will be an ideal response?

[bfulkerson77]

Answer to Question 1

The dominant strategy for Bob is to cheat; either he profits by 16,000 (if Donna agrees) or he profits by 4,000 (if Donna also cheats). The alternative of agreeing could profit him by 10,000 (if Donna also agrees), but it could also cause him to lose 4,000 (if Donna cheats). The dominant strategy for Donna is to cheat; either she profits by 16,000 (if Bob agrees) or she profits by 4,000 (if Bob also cheats). The alternative of agreeing could profit her by 10,000 (if Bob also agrees), but it could also cause her to lose 4,000 (if Bob cheats). If Bob thinks Donna will cheat, he should cheat because the potential payoff is greater. If Donna thinks Bob will cheat, she should cheat because the potential payoff is greater. The maximin strategy for both Bob and Donna would be to cheat. If each cheats, their individual profits will be 4,000 .

Answer to Question 2

A monopolist's demand curve and marginal revenue curve are both downward sloping. The two curves begin at the same point on the price axis because the price of the first unit is the marginal revenue from selling the first unit. Thereafter, marginal revenue is below price because the monopolist must lower the price of all units of the good that it sells in order to sell additional units of the good.