1. Do the firms in an oligopoly act independently or interdependently? Explain your answer.
In an oligopoly market structure, the firms behave interdependently. The market has few firms and each considers the impact of its pricing, quality, output and market decisions on other rival firms in the market. Precisely, the demand for the output of a firm depends on the decisions of the rival firms (Tucker, 2011). With such a situation, oligopoly firms face difficulties in making decisions regarding the price to charge and output to produce. Therefore, to reduce uncertainty on their demand, oligopoly firms engage in behaviors that would allow them to predict the actions of rival firms. The firms might decide to collude, form cartels or use the price leadership strategy (Tucker, 2011).
2. A monopolistically competitive firm has the following demand and cost structure in the short run.
Output Price FC VC TC TR Profit/Loss

a. Complete the table.
b. What level of output maximizes profit or minimizes loss?
The firms will minimize loss ($-30) by producing 2 level of output.
c. Should this firm operate or shut down in the short run? Why?
The firm should shut down in the short-run. The firm is not making profit by selling at the current price. The firm does not earn sufficient revenue to cover for its costs. Similarly, firm’s price is less than the average variable cost. The more output the firm produces, the more losses it suffers.
3. Suppose that Wal-World and Tarbo are independently deciding whether to implement a new bar code technology or use the existing bar code. It is less costly for their suppliers to use one system and the following payoff matrix shows the profits per year for each company resulting from the interaction of their strategies.

a. Does Wal-World have a dominant strategy? Briefly explain.

A dominant strategy is one that is best for a firm regardless of the strategy the other firm will follow (Heifetz & Yalon-Fortus, 2012). Wal-World does not have a dominant strategy. This is because, not matter the strategy Wal-World uses, Tarbo can choose a strategy that will make them earn more than Wal-World. If Tarbo chooses, the new bar code technology, it will earn more money no matter the strategy Wal-World chooses.
b. Does Tarbo have a dominant strategy? Briefly explain.
Tarbo does not have a dominant strategy. For the case of Tarbo, the firm gets a bigger payoff by choosing a strategy that is similar to that of Wal-World. Irrespective of what World-World chooses as the strategy, Tarbo would not have a dominant strategy.
c. Is there a Nash Equilibrium in this game? Briefly explain.
A Nash equilibrium in a game exists when each player chooses a strategy that would give the highest payoff, given the decision taken by the other players (Heifetz & Yalon-Fortus, 2012). In this game, there are two Nash equilibrium. Both Wal-World and Tarbo may decide to use the existing bar code technology (4, 3) or implement the new bar code technology (2, 4).

References
Heifetz, A., & Yalon-Fortus, J. (2012). Game Theory: Interactive strategies in economics and management. Cambridge: Cambridge University Press.
Tucker, I. B. (2011). Microeconomics for today. Mason, OH: SouthWestern.

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