Acquired from www.etownschools.org Unit 8 [Microeconomics] Unit 8 Assignment: Oligopoly and Monopolistic Competition and Product Differentiation Name: - Course Number: - Section Number: - Unit Number: - 8 Date: - Problem Dr. Fine and Dr. Feelgood are the only two medical doctors offering immediate walk-in medical services in the town of Springfield. That is, they operate in a duopoly. Each doctor can charge either a high price or a low price for a standard medical visit. The accompanying matrix shows their payoffs, in profits per patient (in dollars), for any choice that the two doctors can make. 1. Suppose the two doctors play a one-shot game—that is, they interact only once and never again. What will be the Nash (non-cooperative) equilibrium in this one-shot game? 2. Now suppose the two doctors play this game twice. Also, suppose each doctor can play one of two strategies: it can play either “always charge the low price” or “tit for tat”— that is, it starts off charging the high price in the first period, and then in the second period it does whatever the other doctor did in the previous period. Write down the payoffs to Dr. Fine from the following four possibilities: a. Dr. Fine plays “always charge the low price” when Dr. Feelgood also plays “always charge the low price.” FIRST Period Payoffs SECOND Period Payoffs TOTAL Payoffs Charges (high or low) Charges (high or low) Fine Fine Feelgood Feelgood b. Dr. Fine plays “always charge the low price” when Dr. Feelgood plays “tit for tat.” FIRST Period Payoffs SECOND Period Payoffs TOTAL Payoffs Charges (high or low) Charges (high or low) Fine Fine Feelgood Feelgood c. Dr. Fine plays “tit for tat” when Dr. Feelgood plays “always charge the low price.” FIRST Period Payoffs SECOND Period Payoffs TOTAL Payoffs Charges (high or low) Charges (high or low) Fine Fine Feelgood Feelgood d. Dr. Fine plays “tit for tat” when Dr. Feelgood also plays “tit for tat.” FIRST Period Payoffs SECOND Period Payoffs TOTAL Payoffs Charges (high or low) Charges (high or low) Fine Fine Feelgood Feelgood 3. “In the long run, there is no difference between monopolistic competition and perfect competition.” Discuss whether this statement is true, false or ambiguous with respect to each of the criteria listed under a, b, c, and d. Justify your answers. a. The price charged to consumers b. The average total cost of production c. The efficiency of the market outcome d. The typical firm’s profit in the long run --------------------- References: Microeconomics: Unit 8 Assignment: Game Theory and Perfect Competition and monopolistic competition in the Long run Content (15 points) Points Possible Points Earned Game TheoryCorrectly calculated the non-cooperative Nash equilibrium for one-shot game. 3 Two-shot game with two strategies: “always charge the low price” or “tit for tat”. Find.

1. Acquired from www.etownschools.org

2. Unit 8
[Microeconomics]
Unit 8 Assignment: Oligopoly and Monopolistic Competition
and Product Differentiation
Name: -
Course Number: -
Section Number: -
Unit Number: - 8
Date: -
Problem
Dr. Fine and Dr. Feelgood are the only two medical doctors
offering immediate walk-in medical services in the town of
Springfield. That is, they operate in a duopoly. Each doctor can
charge either a high price or a low price for a standard medical
visit. The accompanying matrix shows their payoffs, in profits
per patient (in dollars), for any choice that the two doctors can
make.

3. 1. Suppose the two doctors play a one-shot game—that is, they
interact only once and never again. What will be the Nash (non-
cooperative) equilibrium in this one-shot game?
2. Now suppose the two doctors play this game twice. Also,
suppose each doctor can play one of two strategies: it can play
either “always charge the low price” or “tit for tat”— that is, it
starts off charging the high price in the first period, and then in
the second period it does whatever the other doctor did in the
previous period. Write down the payoffs to Dr. Fine from the
following four possibilities:
a. Dr. Fine plays “always charge the low price” when Dr.
Feelgood also plays “always charge the low price.”
FIRST Period
Payoffs
SECOND Period
Payoffs
TOTAL Payoffs
Charges
(high or low)
Charges
(high or low)
Fine
Fine

4. Feelgood
Feelgood
b. Dr. Fine plays “always charge the low price” when Dr.
Feelgood plays “tit for tat.”
FIRST Period
Payoffs
SECOND Period
Payoffs
TOTAL Payoffs
Charges
(high or low)
Charges
(high or low)
Fine
Fine
Feelgood

5. Feelgood
c. Dr. Fine plays “tit for tat” when Dr. Feelgood plays “always
charge the low price.”
FIRST Period
Payoffs
SECOND Period
Payoffs
TOTAL Payoffs
Charges
(high or low)
Charges
(high or low)
Fine
Fine
Feelgood
Feelgood

6. d. Dr. Fine plays “tit for tat” when Dr. Feelgood also plays “tit
for tat.”
FIRST Period
Payoffs
SECOND Period
Payoffs
TOTAL Payoffs
Charges
(high or low)
Charges
(high or low)
Fine
Fine
Feelgood
Feelgood

7. 3. “In the long run, there is no difference between monopolistic
competition and perfect competition.”
Discuss whether this statement is true, false or ambiguous with
respect to each of the criteria listed under a, b, c, and d. Justify
your answers.
a. The price charged to consumers
b. The average total cost of production
c. The efficiency of the market outcome
d. The typical firm’s profit in the long run
---------------------
References:
Microeconomics: Unit 8 Assignment: Game Theory and Perfect
Competition and monopolistic competition in the Long run
Content (15 points)
Points Possible
Points Earned
Game TheoryCorrectly calculated the non-cooperative Nash
equilibrium for one-shot game.
3
Two-shot game with two strategies: “always charge the low
price” or “tit for tat”.
Find payoffs to Dr. Fine when:
· Dr. Fine plays “always charge the low price” when Dr.
Feelgood also plays “always charge the low price.” (a)
· Dr. Fine plays “always charge the low price” when Dr.
Feelgood plays “tit for tat.”
· Dr. Fine plays “tit for tat” when Dr. Feelgood plays “always

8. charge the low price.”
· Dr. Fine plays “tit for tat” when Dr. Feelgood also plays “tit
for tat.”
4
Considering the following statement: “In the long run, there is
no difference between monopolistic competition and perfect
competition.” discussed whether the following would be
determined to be true, false, or ambiguous (justify your
answers):
· The price charged to consumers
· The average total cost of production
· The efficiency of the market outcome
· The typical firm’s profit in the long run
8
Analysis (6 points)
Work demonstrates synthesis of concepts, research, and
experience
2
Work demonstrates the student’s ability to tie relevant
information to real-life applications.
2
Analysis exceeds basic comprehension to demonstrate higher-
order thinking.
2
Writing (4 points)
Correct use of APA 6th edition format, all sources used to
support the paper are referenced

9. 2
Sentences are clear, concise, and direct; tone is appropriate,
spelling, grammar, and punctuation are correct.
2
Total
25