5. Use the Table Below: Firm B Advertise 10, 10 40,5 Don\'t Advertise 5, 40 30,

Question

5. Use the Table Below: Firm B Advertise 10, 10 40,5 Don't Advertise 5, 40 30, 30 Firm A Advertise Don't Advertise In the table, the payoffs represent profits measured in thousands of dollars. Suppose that Firm A and Firm B are playing an infinitely repeated game. In period 17, Firm B decides to no longer cooperate with Firm A. If Firm A is using a grim trigger strategy, Firm A will choose: a. To advertise in period 17 and all future periods. b. To not advertise in period 17 and advertise in all future periods. c. To advertise in period 1 and all future periods d. To advertise in period 1 and not advertise in all future periods 6. For the following simultaneous game, what is Ferris's dominant strategy Ferris Twist Shout Bump4,8 Elvis Grind2.4 a. None b. Twist c. Shout d. Either Twist or Shout 7. The inverse demand curve for a firm with market power is P cost is given by MC-2Q. If the firm decides to practice first-degree price discrimination, the deadweight loss will: a. increase from $18 to $4. b. increase from $36 to $48 c. decrease from $37.50 to $0. d. decrease from $18 to $(0 60-Q, and its marginal

Explanation / Answer

5> a

Reason

In grim-trigger strategy, the punishment strategy is played for the rest of the game. Thus, it will decide to advertise for the rest of the periods.

6> b Twist

Reason

The payoff is always better with Twist irrespective of the strategy of the other player.

7> d

Reason

All the surplus will become producer surplus, thus the deadweight loss will drop to zero.

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