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Econ 100.2 - Problem Set 8 (final) (2)

The document outlines an economics assignment for a course, including modified true or false questions regarding oligopolistic industries and a case study based on the television show Golden Balls. It also contains essay and computation questions related to the demand schedule for vibranium, detailing scenarios for perfectly competitive and monopoly outcomes, as well as the implications of collusion and production adjustments between two countries. The assignment is due on June 1, 2023, at 10 am.

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2 views

Econ 100.2 - Problem Set 8 (final) (2)

The document outlines an economics assignment for a course, including modified true or false questions regarding oligopolistic industries and a case study based on the television show Golden Balls. It also contains essay and computation questions related to the demand schedule for vibranium, detailing scenarios for perfectly competitive and monopoly outcomes, as well as the implications of collusion and production adjustments between two countries. The assignment is due on June 1, 2023, at 10 am.

Uploaded by

amojeda
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Econ 100.

2, 2nd sem 2022-2023


PS8 – 20 points
Due: June 1, 10am

PART I. Modified TRUE or FALSE (10 points)

Write TRUE if the statement is true. Write FALSE if the statement is false, then explain why or
restate it to make it true (one to two sentences only!).

1. In oligopolistic industries, the firms are so few and big so they can afford to pursue business
strategies that are independent of the strategies of their rivals.

2. Entry of new firms would lower the price and market power in an oligopolistic industry.
Therefore, barriers to entry must be non-existent in an oligopoly.

For numbers 3 to 5, consider the following:

Golden Balls is a British television show from 2007 to 2009. In the first few rounds of the show,
contestants play to increase the pot money that they can win. In the final round, only two players
remain, and both are given the choice to Split or to Steal. Their respective choices will determine
the amount of money that each final player would win.

If one player chooses Steal while the other player chooses Split, the player who chooses Steal gets
the entire pot money, while the player who chooses Split gets nothing. If both of them choose Split,
they will split the pot money equally. If they both choose Steal, they will not get the pot money,
and will instead get a consolation prize of GBP 200 (British pounds) for participating in the show.

3. In one episode, the pot money in the final round amounted to GBP 13,600. The table below
represents the payoff matrix in that particular Golden Balls episode.

Player 2
Split Steal
Split 13600, 13600 6800, 200
Player 1
Steal 200, 6800 0, 0

4. One player’s dominant strategy is Split, while his opponent’s dominant strategy is Steal.

5. The Nash equilibrium of the game is the optimal outcome.

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PART II. Essay/Computation (10 points)

The worldwide demand schedule for vibranium, an extraterrestrial element with remarkable
technological applications, is shown below (columns 1 and 2). Vibranium can only be found in
two countries, Wakanda and Atlantis. The government of each country has nationalized their
vibranium industry, and are spending US$ 3,000 for each metric ton extracted. The revenue, cost
and profit for each price-quantity combination have been computed in columns 3 to 5.

P Q Revenue Cost Profit


(per kg, in US$) (in metric tons) (P * Q) (3,000 * Q) (TR – TC)
0 10.0 0 30,000 -30,000
1,000 9.5 9,500 28,500 -19,000
2,000 8.6 17,200 25,800 -8,600
3,000 7.6 22,800 22,800 0
4,000 6.8 27,200 20,400 6,800
5,000 6.1 30,500 18,300 12,200
6,000 5.0 30,000 15,000 15,000
7,000 4.3 30,100 12,900 17,200
8,000 3.6 28,800 10,800 18,000
9,000 2.7 24,300 8,100 16,200
10,000 2.0 20,000 6,000 14,000

a. (1 pt) What is the “perfectly competitive outcome” (price, quantity sold and profit)
wherein both Wakanda and Atlantis are earning zero economic profits?

b. (1 pt) What is the “monopoly outcome” (price, quantity sold and profit) wherein the
maximum possible industry profit is achieved?

c. (2 pts) If Wakanda and Atlantis collude and form a vibranium cartel, how much vibranium
will each country produce? How much will their profit be?

d. (2 pts) Atlantis’ cunning leader King Namor wants to double cross Wakanda’s Queen
Ramondra so he ordered to raise Atlantis’ production of vibranium by 0.7 metric tons
above the agreed-upon quantity for each country. How much is the market quantity now?
What happens to the profit of both countries?

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e. (2 pts) Nakia, Queen Ramondra’s most trusted spy, found out about Atlantis’ plan. As a
response, Wakanda also increased its vibranium production by 0.7 metric tons above the
agreed-upon quantity for each country. How much is the market quantity now? What
happens to the profit of both countries?

f. (2 pts) Given the information from items (c) to (e), construct the payoff matrix in terms
of profit for when Wakanda and Atlantis decide to cooperate or to cheat.

--- NOTHING FOLLOWS ---

Page 3 of 3

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