Answer the following, providing a graphical illustration along with your answer where necessary: a) What is the profit maximising condition in a market with perfect competition? b) Explain what is meant by abnormal profit? What is the adjustment process from short-run abnormal profit to long-run equilibrium in a perfectly competitive market? c) Please find below Pricing options for firm A and B, along with individual payoffs (Firm A’s payoff/Firm B’s payoff) Firm B Firm A Price £2 Price £1 Price £2 £20,000/£20,000 £10,000/£24,000 Price £1 £24,000/£10,000 £12,000/£12,000 Assume you are the pricing manager at Firm A; i) What is your payoff for a ‘maximin’ strategy? ii) What is your payoff for a ‘maximax’ strategy? iii) Does a dominant strategy exist within this prisoners’ dilemma?
Answer the following, providing a graphical illustration along with your answer where necessary:
a) What is the profit maximising condition in a market with perfect competition?
b) Explain what is meant by abnormal profit? What is the adjustment process from short-run
abnormal profit to long-run equilibrium in a
c) Please find below Pricing options for firm A and B, along with individual payoffs (Firm A’s
payoff/Firm B’s payoff)
Firm B
Firm A
Price £2 Price £1
Price £2 £20,000/£20,000 £10,000/£24,000
Price £1 £24,000/£10,000 £12,000/£12,000
Assume you are the pricing manager at Firm A;
i) What is your payoff for a ‘maximin’ strategy?
ii) What is your payoff for a ‘maximax’ strategy?
iii) Does a dominant strategy exist within this prisoners’ dilemma?
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