Question

In a sequential game, one firm will act first and then other firms will respond.

a. True
b. false

Answer 1

The correct option is True. It is true that in a sequential game, one firm will act first, followed by the responses of other firms. Such games illustrate the strategic interdependence of firm actions in a competitive market, which can lead to zero economic profits in the long-run equilibrium for all firms due to market entry and competitive pressures.

Step-by-step explanation:

In a sequential game, it is true that one firm will act first and then other firms will respond. This dynamic is a characteristic of games where firms are involved in strategic decision-making with respect to their competitive actions. A sequential game involves a situation where firms make moves in turn, allowing each to consider the actions of others before making its own decision.

When a firm in a monopolistically competitive market earns positive economic profits, it invites competitive responses. Other firms will respond by entering the market or by competing more aggressively, which can lead to a decrease in demand and profit-maximizing price for the original firm, ultimately reducing its level of output. This is because new entrants or existing competitors adapt their strategies in response to the firm's success, aiming to capture a part of its market share.

In the long-run equilibrium, the competitive process will result in zero economic profits for all firms in a monopolistically competitive market. This outcome occurs as firms enter or exit the market based on their ability to earn profits. Sequential decision-making is significant in understanding oligopolies and other market structures where the strategic interdependence of firms is a key feature of the market dynamics.

Answer 2

It is true that in a sequential game, one firm acts first and other firms respond accordingly. This strategy leads to competitive moves that can reduce the original firm's profits, eventually leading to a long-run equilibrium of zero economic profits in monopolistically competitive markets.

Step-by-step explanation:

In a sequential game, it is true that one firm will act first, and then other firms will respond. Such games are often represented in the context of business strategy, where firms must make decisions considering the potential reactions of their competitors. The first mover, or the original firm, attempts to make a strategic decision that will solidify its position in the market, such as setting a price, choosing a production quantity, or making an investment.

Over time, as long as the original firm is earning positive economic profits, other firms in the industry will typically enter the market or adjust their strategies in response. This reaction often leads to an increase in competition, resulting in a decrease in demand for the original firm's products, decrease in the firm's profit-maximizing price, and a decrease in the firm's profit-maximizing level of output. This cycle continues until long-run equilibrium is reached, where all firms in a monopolistically competitive market earn zero economic profits.

This phenomenon can also be seen in oligopoly markets, where firms must constantly anticipate and react to the strategic moves of their competitors. In such markets, firms can act more like competitors or more like a monopolist depending on whether they choose to engage in competitive or collusive behavior.