1.Figure: Payoff Matrix II for Blue Spring and Purple Rain Reference: __(Figure:
ID: 2496491 • Letter: 1
Question
1.Figure: Payoff Matrix II for Blue Spring and Purple Rain Reference:
__(Figure: Payoff Matrix II for Blue Spring and Purple Rain) Examine the figure Payoff Matrix II for Blue Spring and Purple Rain. The figure refers to two producers of bottled water. Suppose Blue Spring charges a high price and Purple Rain does the same. In the next period, Blue Spring charges a low price and Purple Rain earns a loss. If Purple Rain responds with a tit-for-tat strategy, they will:
A) always charge a low price—the same as its dominant strategy.
B) charge a low price in the next period and thereafter charge the same price that Blue Spring charged in the previous period.
C) always charge a high price.
2.If a firm operating within monopolistic competition is producing a quantity that generates MC > MR, then the marginal decision rule tells us that profit:
A) can be increased by decreasing production.
B) can be increased by decreasing the price.
C) is maximized only if MC = P.
Explanation / Answer
1. A) always charge a low price—the same as its dominant strategy.
2. A) can be increased by decreasing production.
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