How game theory can be used to model oligopolistic markets

 

 

 

Question 1:
Suppose that graduating from a university only serves as a signal of high ability (and
is not useful in any other way) and that only high-ability individuals can graduate from
university. The costs of a university education are denoted by c. Furthermore, the
productivity of low-ability workers is £20,000 while the productivity of high-ability
workers is £80,000. Firms pay wages according to the (expected) productivity of their
workers. The share of high-ability individuals among the population is θ, the share of
low ability individuals is 1 − θ.
a) What is the difference between a pooling equilibrium and a separating equilibrium?
(10 marks)
b) Under which conditions does
(i) a separating equilibrium exist, and
(ii) a pooling equilibrium exist?
Explain the conditions carefully. What are the wages in these equilibria? (60 marks)
c) Specify the parameters c and θ such that (i) a separating equilibrium exists and (ii)
high-ability individuals are better-off in this separating equilibrium than in a
hypothetical situation in which there is no university. (30 marks)
Question 2:
Explain how game theory can be used to model oligopolistic markets, illustrating your
argument with a game that takes the form of a prisoner’s dilemma. (100 marks)
Word limit: 3000 words in total. Please provide a word count at the end of each
question as well as an overall word count at the end of your essay.
Word limit includes any text in the essay (e.g. quotations, in-text references, and
footnotes). Word limit excludes title of the question/ essay, equations, tables and their
headings, diagrams and their headings, appendices, and bibliography.
Note on the use of Appendices:

Sample Solution

In the world of business, and rather esoterically, doublespeak can be easy to miss if you are not paying attention or lack knowledge on the topic discussed. Because of this, Lutz demonstrates that in 1978, an airline was able to refer to a plane crash as an involuntary conversion to self-protect against the magnitude of the tragedy. Here, the doublespeak of jargon functions as verbal shorthand used to conceal rather than reveal the truth; under similar circumstances, medical malpractice can become therapeutic misadventure (387) and glass occasional bureaucratese, and Lutz highlights the winding, incomprehensible dialect of Federal Chairman, Alan Greenspan (383) as an example to show how language is often bastardised to overwhelm an audience and make things obscure.

In like manner, when words are used to convey a heightened sense of value, or when a convoluted sense of authority or importance is assigned to a person or thing or event, they are in action as inflated language. To put it differently, when a company announces the initiation of a career alternative enhancement program, what it really means is that workers will be laid off; the term for car mechanic is inflated to mean automotive internist, used cars identify as experienced and the U.S. military describes a premeditated ambush of American troops as engaging the enemy on all sides (383). This type of language extends into academia where doublespeak can also be used when trying to describe things that don’t necessarily have to be bad; that is, it is employed to simply enhance the truth. For this reason, libraries are referred to as learning resource centres.

Ultimately, Lutz urges a reversal of linguistic decay which, according to him, is a necessary step towards political revival and language appreciation. Stressing doublespeak as a matter of i

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