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# BUSI 620 MODULE 5 QUESTIONS FOR CRITICAL THINKING 5

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Questions for Critical Thinking 5
Salvatore Chapter 10:
Discussion Questions:
Question 3: What is the difference bween limit pricing and contestable markets
Question 8: I way does OPEC resemble a cartel? How successful is it?
Problems:
Problem: 1 Find the Herfadahl index composed of (a) three firms-one with 70% of the market, and the other 20 and 10 percent of the market respectively; (b) one firm with a 50% share of the market and the 10 other equal-sized firms (c) 10 equal sized firms.
Problem 14.  Since nder price leadership by the dominant firm, the firms in the industry following the leader behave producing where the price set by the leader equals the sum of their marginal cost curves, the followers break een in the long run. True or False,? Explain.
Note:
1.     P1: Use 70 instead of 70% in your Herfindahl index calculation (p.427).
Froeb et al. Chapter 10:
Individual problems: 10-4.
Question: 10-4; Examine the U.S. passenger airline industry using  the Five Forces. Is this an attractive industry? Why or why not?
Salvatore Chapter 11:
Discussion Questions:
Question 11:  Do the duopolists in a Cournot equilibrium face a prisoners’ delimina? Explain.
Question 12. How did the 1971 law that banned cigarette advertising on television solve the prisoners’ dilemma for cigarette producers?
Problems: 2 – From the following matrix, where the payoff’s are the profits or losses of the two firms, determine (a) whether firm A has a dominant strategy, (b) whether firm B has a dominant strategy, (c) the optimal stategy for each firm and (d) the Nash equilibrium. If there is one.

Firm B

Low Price

High Price

Low Price

(1,1)

(3, -1)

Firm A

High Price

(-2, 3)

(4, 2)

Problems: 6 – Explain why the playoff matrix in Problem 1 indicates that firms A and B face the prisoners’ dilemma.

Firm B

Low Price

High Price

Low Price

(1,1)

(3, -2)

Firm A

High Price

(-2, 3)

(2, 2)

Problems: 10 -  Given the following payoff matrix, (a) indicate the best strategy for each firm. (b) Why is the entry-deterrent threat by firm A to lower the price not credible to firm B? (c) What could firm a do to make its threat credible without building excess capacity?

Firm B

Low Price

High Price

Low Price

(3,-1)

(3, 1)

Firm A

High Price

(4,5)

(6,3)

(more)
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