1. Some games of strategy are cooperative. One example is deciding which side of the road to drive on. It doesn’t matter which side it is as long as everyone chooses the same side. Otherwise, everyone may get hurt.

a. Does either player have a dominant strategy? Explain.

There is no dominant strategy from left or right. Both right and left could result in a higher payoff.

b. Is there Nash equilibrium in this game? Explain.

A Nash equilibrium exists when “players are in equilibrium if a change in strategies by any one of them would lead that player to earn less than if she remained with her current strategy (Shor, 2006).” Since neither player has a dominant strategy, this game does not have a Nash equilibrium.

c. Why this game is called a cooperative game?

Both players have to cooperate with one another and choose the same side. It is in the best interest of both left and right to choose the same side. If not, they will have a big negative payoff.

2.

a. What is the firm’s Total Revenue?

MC equals MR to maximize the profits. The monopoly output level is at E. From the demand curve, the price should be at A. Total revenue equals Price times Quantity. This is represented at area of AJEO\

b. What is the Total Cost?

The average output E on the graph is H. The total Cost equals ATC times Q. This equals area BHEO.

c. What is the firm’s Total Profits?

Total profits equal total revenue minus total cost. This is represented by area AJHB.

d. If the above monopolist were to behave like a perfectly competitive firm (operating in the long run), determine its output.

The long run equilibrium price would represent the minimum of the average total cost. This is where the level of MC crosses ATC. The output level would represent L....