Game theory is a tool for studying competitive behavior between ...

[fbq8i]

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?

[livaneabi]

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]

Thanks for the timely response, appreciate it

[nathang24]

Gracias!