- 25 Suppose Two Firms A And B Operate As Duopolists In A Particular Market The Following Payout Matrix Shows The Prof 1 (113.7 KiB) Viewed 42 times
25. Suppose two firms, A and B, operate as duopolists in a particular market. The following payout matrix shows the profit for each firm (A's profit, B's profit) under four scenarios tied to whether both firms buy an advertisement (“ad”), neither firm buys an ad, or just one firm buys an ad: B buys ad B does not buy ad A buys ad (50, 50) (100, -50) A does not (-50,100) (80, 80) buy ad Which of the four scenarios corresponds to a Nash equilibrium? a) Both firms buy an ad (A's profit is 50, B's profit is 50). b) Neither firm buys an ad (A's profit is 80, B's profit is 80). c) A buys an ad and B does not buy an ad (A's profit is 100, B's profit is -50). d) B buys and ad and B does not buy an ad (A's profit is -50, B's profit is 100). e) We cannot find the Nash equilibrium without additional information. 26. Consider a firm that uses labor (L) and capital (K) to produce output. Which of the following factors will cause this firm's long-run demand for labor curve to be relatively (wage) elastic? a) The firm views L and K as close substitutes in production. 6 b) The firm changes its output level by very little in response to a change in the price of labor. c) The firm's marginal revenue product of labor curve is highly inelastic. d) A minimum wage is in effect. e) All of the above.