Question

112 Marginal revenue can become negative for

Select one:

a. a. competitive firms but not for monopoly firms.

b. a. both competitive and monopoly firms.

c. a. neither competitive nor monopoly firms.

d. a. monopoly firms but not for competitive firms.

115This table shows a game played between two players, A and B. The payoffs are given in the table as (Payoff to A, Payoff to B).

		B
		Left	Center	Right
	Up	(8, 4)	(4, 10)	(6, 6)
A	Middle	(6, 2)	(10, 6)	(10, 4)
	Down	(2, 6)	(8, 8)	(12, 2)

1.    Which of the following statements is true regarding this game?

Select one:

a. a.  A has a dominant strategy, but B does not have a dominant strategy.

b. a.  B has a dominant strategy, but A does not have a dominant strategy.

c. a.  Both players have a dominant strategy.

d. a.  Neither player has a dominant strateg

Answer 1

(1) Marginal revenue for a perfectly competitive firm is constant and equal to market price.

Marginal revenue for a monopoly is downward sloping. It becomes negative for the inelastic portion of demand curve.

Therefore, the marginal revenue can become negative for monopoly firm but not for competitive firms.

Answer: Option (D)

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(2)

		Player B
		Left	Centre	Right
Player A	UP	8, 4	4, 10	6, 6
Middle	6, 2	10, 6	10, 4
Down	2, 6	8, 8	12, 2

Best response of player A:

When Playe B choose 'Left', then Player A will choose 'Up" to maximize payoff

When Playe B choose 'Centre', then Player A will choose 'Middle" to maximize payoff

When Playe B choose 'Right', then Player A will choose 'Down" to maximize payoff

Hence, player A does not have dominant strategy because his decision changes as the Player B strategy changes.

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Best response startegy of Player B.

When Playe A choose 'Up', then Player B will choose 'Centre" to maximize payoff

When Playe A choose 'Middle', then Player B will choose 'Centre" to maximize payoff

When Playe A choose 'Down', then Player B will choose 'Centre" to maximize payoff

Hence, Palyer B will always choose 'Centre" as a strategy in response to any strategy of Player A.

It means Player B has a dominant strategy, which is Centre.

Answer: Option (b)