Some Conceptual Questions I. Explain the prediction of the Bertrand duopoly mode

Question

Some Conceptual Questions I. Explain the prediction of the Bertrand duopoly model that both firms will price at marginal cost. Hovw does Cournot Duopoly differ? 2. Explain how first, second, and third degree price discrimination differ from the standard uniform pricing problem of the monopolist. Give real world examples of both second and third degree price discrimination. Explain why the examples accurately depict second and third degree price discrimination 3. Briefly explain the logic behind backward induction, our approach to solving sequential (dynamic) games. Use the difference between Coumot and Stackelberg duopoly as an example. 4. Briefly explain the difference in market structure between perfect competition, monopolistic competition, oligopoly, duopoly, and monopoly, and explain why or why not we need to use game theory to understand firms' decision-making. 5. Explain the difference between moral hazard and adverse selection. Discuss three examples of features of the labor market that can be explained as features that ameliorate moral hazard in the employer - employee relationship.

Explanation / Answer

1. In Bertrand duopoly both firms will charge price equals to marginal cost. This is so because if one firm deviates from price equal to marginal cost then other firm will undercut its price its price further to peevent the other firm usurping the market share.

In Curnot duopoly the price charged would be higher than the marginal cost and each firm would earn profit in market .

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