ECON101 Lecture Notes - Lecture 25: Repeated Game, Demand Curve, Oligopoly
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The demand curve is kinked at the current price and quantity. The firm assumes that if it raises its price, no price will change the price. The firm assumes that if it lowers the price, other firms will lower their price. Marginal revenue (mr) is discontinuous at the current price +quantity. The dominant firm model: game theory models. W xd = d - s: all games share some common features, rules, strategies, payoffs, outcome. Two strategies- confess to crime or deny to crime. Possible outcomes- there"s 4: both deny, both confess, art confesses and bob denies, bob confesses and art denies. No matter what art does, the best strategy for bob is to confess. The dominant strategy: no matter what bob is doing, the best option strategy for art is to confess. Nash equilibrium: both players should confess to this crime and end up getting 3 years in prison. Chapter 6: government intervention in the market economy: perfect competition.