Question
(I) College Retirement Equities Fund (CREF) is a pension fund that has billions of dollars invested in the stock market. Fund participants recently voted on
(I) College Retirement Equities Fund (CREF) is a pension fund that has billions of dollars invested in the stock market. Fund participants recently voted on a proposal that would have placed strict limits on the amount of compensation paid to CREF executives. Why do you think 75 percent of the participants voted against the proposal? Please give an explanation.
(II) (a) Does a baseball club, like the Kansas City Royals, have a monopoly since they are the only baseball club in Kansas City and MLB controls the entry of any new teams in the market and they have not consented to the entry of any new baseball team in Kansas City (does Kansas City Royals provide a unique product for which there are no close substitutes)? Please give an explanation.
(b)Firms like McDonald's and Wendy's sell hamburgers, salads, and other products that are differentiated in nature. While numerous fast-food restaurants exist in most locations, the differentiated nature of the firms' products permits them to charge prices that are more than marginal cost. Given these observations, is the fast-food industry most likely a perfectly competitive industry, a monopoly, monopolistically competitive, or an oligopoly?
(III) Firm A and Firm B operate in a duopoly in which you and a rival must simultaneously decide what price to advertise in the weekly newspaper.
Firm B | |||
Low Price | High Price | ||
Firm A | Low Price | (0, 0) | (5, 5) |
High Price | (5, 5) | (3, 3) |
(In each cell in the above table the first number within brackets refers to the return for Firm A, and the second number refers to the return for Firm B).
(a) Does Firm A have a dominant strategy? If yes, what is it?
(b) Does Firm B have a dominant strategy? If yes, what is it?
(c) What is the Nash equilibrium for the one-shot simultaneous move game?
(d) If the firms were able to collude, what outcome would they agree on?
(e) Now suppose the game is infinitely repeated. If the interest rate is 10 percent, can a trigger strategy be used to enforce the collusive outcome you have identified in (d). Please explain.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started