Author Question: If each player has a dominant strategy, then those strategies make up the Nash equilibrium. What ... (Read 115 times)

leilurhhh · **on:** Jul 1, 2018

If each player has a dominant strategy, then those strategies make up the Nash equilibrium.

What will be an ideal response?

Question 2

A firm experiences increasing returns to scale; that is, doubling all its inputs more than doubles its output. What can be inferred about the firm's short-run costs?

What will be an ideal response?

vseab · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

True. A Nash equilibrium is where each player is selecting their best response to the other player's strategy. Because a dominant strategy is a best response to any strategy of the other player, it must also be a best response to the specific strategy of the other player.

Answer to Question 2

Returns to scale is a long-run phenomenon because all inputs must be changed. Thus we can infer little about the firm's short-run costs from this information, other than the firm is likely to experience diminishing marginal returns in the short run due to the fact that it will have a fixed factor of production (and thus short-run marginal costs will rise with output).