# week 1 - The Game Theory Week 01 Chapter 05 Life is the...

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Week 01 – Chapter 05 Monopoly and Perfect competition The 2 extremes and 2 basic games The Game Theory Life is the game that must be played. Edwin Robinson, poet (1869-1935) When I am getting ready to reason with a man I spend one-third of my time thinking about myself and what I am going to say, and two- thirds thinking about him and what he is going to say. Abraham Lincoln Holmes Institute, 2008 2 Prison Game 3 Holmes Institute, 2008 4 The Game setting – deck of cards Holmes Institute, 2008 5 Game rules Teacher holds all red cards (26) 26 Students hold all black cards ( Each one get one card) Pair of a black and red card worth \$100 Teacher and student negotiate and determine a price for exchange. Teacher initiate the exchange process in sequential order. Holmes Institute, 2008 6

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Change the game – reduction of 3 red cards Teacher holds all red cards (23) 26 Students hold all black cards ( Each one get one card) Pair of a black and red card worth \$100 Teacher and student negotiate and determine a price for exchange. Teacher initiate the exchange process in sequential order. Holmes Institute, 2008 7 Result Dump original game Original game half of 2,600 = 1,300 based on 50/50 split ratio Motivational game Alternate game 90% of 2,300 = 2,070 Holmes Institute, 2008 8 Perfect Competition 9 Key concepts What is perfect competition? Why is the perfectly competitive firm a price taker? What determines the firm’s profit maximising output? What is the shut down rule? What is normal profit? What determines long-run equilibrium? What are the possible characteristics of long- run supply curves? Utah 5300 Week 01 10 Market Structure Type 01 – Monopoly Type 02 – Oligopoly Type 03 – Monopolistic competition Type 04 – Perfect competition 11 Market structure Market structure is a classification system for the key traits of a market, including the number of firms, the similarity of the products they sell, and the ease of entry into and exit from the market. This chapter explains how competitive markets determine prices, output and profits. 12
Perfect competition A market structure which features: A large number of small firms A homogeneous (identical) product Very easy entry into or exit from the market. 13 Large number of small firms A perfectly competitive market may be made up of thousands of small firms (e.g. egg farmers in Australia). They act independently rather than coordinating decisions centrally. Since no firm produces a significant share of total output, no firm can, by itself, affect the market price. 14 Homogeneous product Homogeneous products mean goods from one firm cannot be distinguished from another: For example a potato grown by grower A cannot be distinguished from a potato grown by grower B This means an identical product. Buyers are indifferent as to which sellers’

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## This note was uploaded on 02/15/2012 for the course ECON 5300 taught by Professor Ken during the Spring '11 term at Utah Valley University.

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week 1 - The Game Theory Week 01 Chapter 05 Life is the...

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