hw09key - BINGHAMTON UNIVERSITY Department of Economics...

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BINGHAMTON UNIVERSITY Department of Economics Principles of Microeconomics (Econ 160B) Homework #9 Answer Key 1. Under what conditions does an oligopoly market result in the same outcome as monopoly? Oligopoly results in the monopoly outcome when oligopolists can successfully collude and charge the monopoly price. 2. Consider the decision tree depicted in Figure 15.7 concerning a collusive agreement between firms owned by Bob and Donna. Each participant has the option of following the terms of the agreement or cheating on the terms of the agreement. What do you think the outcome of this game will be? Carefully explain your answer. Donna either profits by $16,000 (if Bob agrees) or she profits by $4,000 (if Bob also cheats). Hence, she will always cheat, so Bob should cheat also because the potential payoff is greater (-$4,000 if he stands by the agreement vs. $4,000 if he cheats). If the game is played once, the likely strategy for both Bob and Donna will be to cheat. If each cheats, their individual profits will be $4,000.
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This note was uploaded on 05/27/2008 for the course ECON 160B taught by Professor Michaelvardanyan during the Fall '08 term at Binghamton University.

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hw09key - BINGHAMTON UNIVERSITY Department of Economics...

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