Author Question: Assume that in a price-fixing game, if Player A breaks the agreement in the first year, she earns 11 ... (Read 59 times)

Cooldude101 · **on:** Jun 30, 2018

Assume that in a price-fixing game, if Player A breaks the agreement in the first year, she earns 11 while Player B earns 5 . However, if Player A breaks the agreement once, Player B decides to break the agreement for eternity, leaving each to receive 8 per year for the rest of their lives. If they both keep the agreement each receives 9 per year for the rest of their lives. If the discount rate is 30 percent per period:
a. Player A will prefer to break the agreement in the first year.
b. Player A will prefer to break the agreement in the second year.
c. Player A will prefer to keep the agreement throughout her life.
d. Player A will prefer to keep the agreement only for the first five years.

Question 2

A monopolistically competitive firm:
a. tries to differentiate its product from the products of competitors.
b. faces a perfectly elastic demand curve for its product.
c. unlike a perfectly competitive firm, is able to earn positive economic profits in the long run.
d. is always a retail establishment.