Author Question: Refer to Table 14-3. Which of the following statements is true? A) The Nash equilibrium is a ... (Read 106 times)

jake · **on:** Jun 29, 2018

Refer to Table 14-3. Which of the following statements is true?

A) The Nash equilibrium is a noncooperative, dominant strategy equilibrium.
B) The Nash equilibrium is a cooperative equilibrium.
C) There is no Nash equilibrium in this game because each party pursues its dominant strategy.
D) The Nash equilibrium is a collusive equilibrium.

Question 2

Refer to Figure 13-16. Figure 13-16 depicts a monopolistically competitive barber shop. Use the diagram to answer the following questions.

a. Suppose the average variable cost of production is 15 when output equals 110 haircuts and 15.25 when output equals 140 haircuts. If the firm wants to maximize its profit or minimize its losses, how many haircuts will it produce and what price should it charge? Explain your answer.
b. Calculate the firm's profit or loss.
c. What is likely to happen in this industry over time as it moves to its new long-run equilibrium?
d. Suppose the barber shop depicted in the diagram remains in the industry. Is this barber shop likely to produce this same quantity of haircuts as in part (a) in the long run?

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

Answer to Question 1

A

Answer to Question 2

a. Output = 110, Price = 21 whereby MR = MC. The barber shop will minimize its losses since P > AVC.
b. The economic loss = 440 (total revenue = 21 110 = 2,310; total cost = 25 110 = 2,750 ).
c. Short-run losses will lead some firms to exit the market. As a result, the demand curve for a firm remaining in the market will shift to the right and become less elastic. Exit continues until economic losses are eliminated and each firm breaks even.
d. No, its demand increases and becomes less elastic. It will produce a larger quantity.