## I also need help with this problem set for an economics class. I am have done ok on the last 3 but thought I would see if you could help me with this one.

ECON 213 PROBLEM SET 4 Name: ______________________________________________ Problem Set 4 is due by 11: (ET) on Friday of Module/Week 8. Monopolies…

I also need help with this problem set for an economics class. I am have done ok on the last 3 but thought I would see if you could help me with this one.

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ECON 213

P

ROBLEM

S

ET

4

Name: ______________________________________________

Problem Set 4 is due by 11:59 p.m. (ET) on

Friday

of Module/Week 8.

1.

Monopolies can sometimes find themselves in difficult financial situations that lead to losses.

Suppose Mr. Burns’ power company has a monopoly for providing electricity in Springfield.

His costs of upkeep are so high that he is consistently losing money.

a.) Show this outcome in a completely labeled graph. Clearly identify all parts of your graph,

including the best price and output for the firm as well as the losses.

Now, answer the following:

b.) What happens to the market output when Mr. Burns raises the price he charges?

c.) Will this stop his losses? Why or why not?

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ECON 213

2.

Assume the following game is played one time only. Based on the information in the payoff

matrix below, PNC Bank and Citizens Bank are considering an implicit collusive agreement

on interest rates. Payoffs to the two firms are represented in terms of profits in thousands of

dollars.

Citizens Bank

Collude: Raise

Rates

Defect: Keep Rates

Where They Are

PNC

Collude: Raise

Rates

(900, 600)

(700, 800)

Defect: Keep Rates

Where They Are

(1100, 300)

(800, 400)

a.) Does PNC have a dominant strategy? What is it?

b.) Does Citizens have a dominant strategy? What is it?

c.) Does the result of your answer change if the game is played an infinite number of times?

Why or why not? Properly use game theoretic terminology in your answer.

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