1. For each of the following industry types, indicate (a) whether p...

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1. For each of the following industry types, indicate (a) whether price is set above, below, or equal to marginal cost; (b) whether firms earn positive, negative, or zero profits in long run equilibrium; and (c) whether entry or exit is free or restricted. Price vs. Marginal Cost Profits Entry/Exit Perfect Competition Monopolistic Competition Monopoly 2. Consider the following Prisoner’s Dilemma problem. Row and column commit a crime and are arrested. They are placed in separate rooms and given the choice to either confess to the crime or deny their involvement. Row Column Confess Deny Confess Row: 8 years in jail Column: 8 years in jail Row: 1 year in jail Column: 10 years in jail Deny Row: 10 years in jail Column: 1 year in jail Row: 2 years in jail Column: 2 years in jail A. What is the Nash Equilibrium outcome for this game? 3. Consider the following simultaneous, non-cooperative game, where two competing firms, Column and Row, are trying to decide whether to construct a large store or a small one. Profits to each firm under each outcome are given below. COLUMN Small Large ROW Small Row gets $100 Column gets $100 Row gets $50 Column gets $105 Large Row gets $105 Column gets $50 Row gets $5 Column gets $5 A. Does either player have a dominant strategy? If so, what is it/are they? B. Does this game have any Nash equilibria? How many (there may be more than one)? What is it/are they?

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