Consider a market with two firms managed by Harry and Vera. Under a cartel (both firms pick the high price), each firm earns a profit of $85. Under a duopoly (both firms pick the low price), each firm earns a profit of $70. If the two firms pick different prices, the high-price firm earns a profit of $25 and the low-price firm earns a profit of $100. This is depicted in the payoff matrix to the right. The outcome of the pricing game is Vera High Price Low Price O A. Harry and Vera both pick the high price. O B. Harry picks the low price and Vera picks the high price. OC. Harry picks the high price and Vera picks the low price. Harry $85 $100 High Price $85 $25 O D. Harry and Vera both pick the low price. $25 $70 The outcome identified above is a Nash equilibrium because neither firm has an incentive to Low Price $100 $70 O A. pick the high price given that the other player is picking the low price. O B. pick the high price given that the other player is picking the high price. OC. pick the low price given that the other player is picking the high price. O D. pick the low price given that the other player is picking the low price.

The table below shows the payoffs for two firms competing on price (a Bertrand duopoly). Firm A and Firm B can each choose to raise their prices, or to keep their prices low. A's Strategy Raise Price Table 14.4 B's Strategy Raise Price A's profit $6,000 B's profit $6,000 C. Don't A's profit $30,000 Raise B's profit $20,000 a. Firm A: Don't Raise Price Firm B: Don't Raise Price Based on the pay-off table above, what is the Nash equilibrium outcome? b. Firm A: Raise Price Firm B: Don't Raise Price Firm A: Don't Raise Price Firm B: Raise Price d. More than one answer is correct Don't Raise Price A's profit $20,000 B's profit $30,000 A's profit $10,000 B's profit $10,000

If a market structure is an oligopoly, do Lexus, Cadillac, and Lincoln engage in sticky pricing? Who is the market leader?

Suppose that the central bank for this economy suddenly and unexpectedly decreases the money supply in an effort to reduce inflation. As a result of this unanticipated policy action, actual inflation falls to 3%. On the previous graph, use the black point (plus symbol labeled "B") to illustrate the short-run effects of this policy. Suppose that now, after a period of 3% inflation, households and firms begin to expect that the inflation rate will persist at the level of 3%. On the previous graph, use the purple line (diamond symbol) to draw SRPC₂, the short-run Phillips curve that is consistent with these expectations, assuming that it is parallel to SRPC₂- Finally, using the orange point (square symbol labeled "C"), indicate on the previous graph the new, long-run equilibrium for this economy. The inflation rate at point C is unemployment rate at point A. the inflation rate at point A, and the unemployment rate at point C is Was the central bank able to achieve its goal of lowering…