Q4 In a perfectly competitive market like market for fresh vegetables and fish, government intervention may reduce economic well-being. However, government intervention in the economy is needed when market is imperfectly imbalance where goods and services could not be offered in the market such as the nature of public goods. (a) Explain FOUR (4) reasons for government intervention in the market economy. (8 marks) (b) Firm A and Firm B are two rival airlines that serve similar routes around the world. The payoffs to the two airlines are shown in Figure Q4(b). Assume Firm A and Firm B decided simultaneously considering entry into a new market. If neither enters, both earn zero. If both enter, they both lose 100. If one firm enters, it gains 50 while the other earns zero. (i) Explore the best strategy that Firm A and Firm B could undertake that maximize both players payoffs. (7 marks) (ii) Assume Firm A and Firm B collude to set the level of price and quantity in the industry. By colluding, they are acting as a monopoly. Evaluate the consequences of Firm A and Firm B collusion when an oligopoly market becoming a monopoly market. (10 marks) - END OF QUESTIONS - CONFIDENTIAL TERBUKA FINAL EXAMINATION SEMESTER SESSION : SEM 1/ 2020-2021 PROGRAMME CODE COURSE NAME : MANAGERIAL ECONOMICS COURSE CODE : MIRA MPA 21601 Table QI: Productivity of applicant Applicant Output 75 60 Figure Q4 (b): Firm A and Firm B payoffs Firm B Do Not Enter Enter Enter -20 Firm A Do Not Enter