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Chapter 23: Problem 32

Game theory can be applied to each of the following concepts except \((\mathrm{LO5})\) a) a monopoly b) a cutthroat competition c) the kinked demand curve d) duopoly

Short Answer

Expert verified
The concept that game theory cannot be applied to is \((\mathrm{LO5})\) a) a monopoly.

Step by step solution

01

Understanding each concept

Let's first understand each concept briefly: a) Monopoly: A market situation where a single firm controls the entire market for a product with no close substitutes. b) Cutthroat competition: A situation where firms aggressively compete against each other, often through pricing strategies or aggressive marketing tactics. c) Kinked demand curve: A model of an oligopoly market where firms face a demand curve that is more elastic above the point of intersection (current price) and less elastic below it. This is because firms will match price cuts, but not price increases. d) Duopoly: A market situation where two firms control the entire market for a product with no close substitutes.
02

Applying game theory to each concept

Now, let's see how we can apply game theory to each concept. a) Monopoly: In a monopoly, there is only a single firm in the market, so there is no strategic interaction between firms. b) Cutthroat competition: In a cutthroat competition, firms compete with each other strategically, which can be modeled using game theory. c) The kinked demand curve: The kinked demand curve represents the strategic behavior of firms in an oligopoly market, which can also be modeled using game theory. d) Duopoly: In a duopoly, there are two firms, and they interact strategically. Game theory can model their decision-making processes.
03

Identifying the concept not applicable to game theory

Based on our analysis in Step 2, we can see that game theory can be applied to cutthroat competition, the kinked demand curve, and duopoly. However, in the case of a monopoly, there is only a single firm in the market, and there is no strategic interaction between firms. Therefore, game theory cannot be applied to a monopoly. Answer: The concept that game theory cannot be applied to is \((\mathrm{LO5})\) a) a monopoly.

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Most popular questions from this chapter

Administered prices are most likely to occur under ( \(\mathrm{LO} 4)\) a) perfect competition c) monopoly b) monopolistic competition d) oligopoly

The electric machinery case involved \- \((\mathrm{LO} 2)\) ( c) cutthroat competition b) covert collusion d) none of the above

According to the theory of the kinked demand curve, if a firm were to lower its price, its competitors would (LO3) a) lower theirs b) raise theirs c) keep theirs the same

According to the theory of the kinked demand curve, if a firm were to raise its price, its competitors would (LO3) a) lower theirs b) raise theirs c) keep theirs the same

Which statement is false? (LO1) a) The cigarette and auto industries have high concentration ratios. b) OPEC is a cartel. c) Most oligopolies engage in outright collusion. d) None of these statements is false.
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