1. (a) With the aid of illustrations, show and explain why the perfectly competi
ID: 1116487 • Letter: 1
Question
1. (a) With the aid of illustrations, show and explain why the perfectly competitive industry, unlike the monopolistic industry, is a model of productive and allocative efficiencies. Suppose the per unit cost of producing a good is $20, show and explain why a perfect competitor should or should not produce 5 units for $15 per unit 2. Two firms, say Kmart and Target, have to make a pricing decision. Suppose the firms are confronted with the following pricing matrix rice arge Pric $600 S400 Kma S600 KS10K K S5K rt TS10kTS15k $400 K$15K KS7.5K TS5KT$7.5k (i) Does any of the firms have a dominant or nondominant strategy? Why? (ii) What is the Nash Equilibrium? Why? (iii) Is there a prospect for a collusive pricing outcome? Why? In the light of US antitrust laws, briefly evaluate the impediments to such a pricing strategy. 3. Bonus: You may use the kinked demand model and its limitations to evaluate the arguments for price stability in the oligopolistic structure. INB: QT Review session November 16,2017]Explanation / Answer
2) Kmarta have dominant startaegy as price=400
Target also have dominant strategy as price=400 because dominant strategy is a strategy which a player plays irrespective of other player strategy
B)(400,400) is nash equilibrium
C) yes there is a collusive price where both players can be made better off. If both charge price=600 theb both can be made better off
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