01:220:102 Lecture Notes - Lecture 22: Marginal Cost, Marginal Revenue, Invisible Hand

• School: Rutgers University
• Department: Economic
• Course: 01:220:102
• Professor: Barbara Crockett

Document Summary

Nash equilibrium: each player chooses a strategy that is best, given the strategies of others (changing strategies doesn"t make anyone better off: just b/c you have nash equilibrium doesn"t mean you have dominant strategy. Prisoner"s dilemma: if everyone pursues own self-interest, then everyone will end up in position they don"t want to be in (ppl. need 2 work together 2 achieve common goal) outcome = suboptimal for players: rock-paper-scissors: randomized strategy. Tragedy of the commons example: firm 1 should always pollute, firm 2 should always pollute, pure dominant strategy = always pollute, example of prisoner"s dilemma b/c both rms = pursuing self-interest & ending up in suboptimal position. Equilibrium means that no party can be better off changing their decision. Monopolistic competition: many competing rms, products = similar but slightly differentiated, no barriers 2 entry & exit, 0 econ. pro ts in long run. Oligopolies can sell homogeneous/differentiated products (steel, oil, gasoline, computer hard drives)