Question 1:

For each of the following characteristics, say whether it describes a monopoly firm, a
monopolistically competitive firm, both, or neither.
a. Faces a downward-sloping demand curve
b. Has marginal revenue less than price
c. Faces the entry of new firms selling similar products
d. Earns economic profit in the long run
e. Equates marginal revenue and marginal cost
f. Produces the socially efficient quantity of output

Question 2:
Synergy and Dynaco are the only two firms in a specific high-tech industry. They face the
following payoff matrix as they decide upon the size of their research budget:

a. Does Synergy have a dominant strategy? Explain.

b. Does Dynaco have a dominant strategy? Explain.
c. Is there a Nash equilibrium for this scenario? Explain. (Hint: Look closely at the definition of
Nash equilibrium.)