Chapter 10: Q.9 (page 252)
If the firms in a monopolistically competitive market
are earning economic profits or losses in the short run, would you expect them to continue doing so in the long run? Why?
We cannot expect businesses to make long-term economic profits or losses in a monopolistically competitive market.
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Jane and Bill are apprehended for a bank robbery. They are taken into separate rooms and questioned by the police about their involvement in the crime. The police tell them each that if they confess and turn the other person in, they will receive a lighter sentence. If they both confess, they will be each be sentenced to years. If neither confesses, they will each receive a -year sentence. If only one confesses, the confessor will receive data-custom-editor="chemistry" years and the one who stayed silent will receive years. Table below represents the choices available to Jane and Bill. If Jane trusts Bill to stay silent, what should she do? If Jane thinks that Bill will confess, what should she do? Does Jane have a dominant strategy? Does Bill have a dominant strategy? A = Confess; B = Stay Silent. (Each results entry lists Jane’s sentence first (in years), and Bill's sentence second.)
Does each individual in a prisoner’s dilemma benefit more from cooperation or from pursuing self-interest? Explain briefly.
Will the firms in an oligopoly act more like a
monopoly or more like competitors? Briefly explain.
Would you rather have efficiency or variety? That is, one opportunity cost of the variety of products we have is that each product costs more per unit than if there were only one kind of product of a given type, like shoes. Perhaps a better question is, “What is the right amount of variety? Can there be too many varieties of shoes, for example?”
When OPEC raised the price of oil dramatically in the mid-, experts said it was unlikely that the cartel could stay together over the long term—that the incentives for individual members to cheat would become too strong. More than forty years later, OPEC still exists. Why do you think OPEC has been able to beat the odds and continue to collude? Hint: You may wish to consider non-economic reasons.
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