BUSI W5 DB Post Managerial Economics

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Overview
This week analyzes how price and output are determined under oligopoly. It covers the Cournot model, the kinked demand curve model, cartel arrangement, and Porter�s strategic framework. It also discusses firm architecture in a globalizing world as well as it deals with strategic behavior, dominant strategy, the Nash equilibrium, the prisoners� dilemma, and other decision-making games.

Learning Outcomes
Upon successful completion of this module, you will be able to:

� Understand the interrelationship among firms in the oligopoly market.
� Understand various models that explain the oligopoly market.
� Apply game theory in decision-making.

In 550-word count, answer the following questions:
1. A market has only 2 sellers. They are both trying to decide on a pricing strategy. If both firms charge a high price, then each firm will experience a 5% increase in profits. If both firms charge a low price, then each firm will experience a 3% increase in profits. If Firm 1 charges a high price and Firm 2 charges a low price, then Firm 1 will experience a 1% increase in profits and Firm 2 will experience a 6% increase in profits. If Firm 2 charges a high price and Firm 1 charges a low price, then Firm 2 will experience a 2% increase in profits and Firm 1 will experience a 7% increase in profits.
� Construct a payoff matrix for this game.
� Determine whether each firm has a dominant strategy and, if it does, identify the strategy.
� Determine the optimal strategy for each firm.
� Determine the Nash equilibrium. (v) Is this a prisoners� dilemma? How do you know?
2. Respond to the charge that immigrants flood the labor market and drive down wages in the U.S.
Additional information:
� “When a foreigner resides among you in your land, do not mistreat them. The foreigner residing among you must be treated as your native-born. Love them as yourself, for you were foreigners in Egypt. I am the LORD your God” (Leviticus 19:33�34, NIV).
� “There is no evidence that over time, immigrants reduced wages, lowered the living standards of the resident population or raised unemployment rates.” � John Stapleford, Bulls, Bears, and Golden Calves. IVP Academic (p. 227)

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