Managerial Economics Question Set III Reaction Paper

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Conversely, the optimal strategy for Firm 2 is to charge low prices while Firm 1 charges high prices, a scenario which generates a 6% increase in profits for Firm 2, as opposed to a 1% gain for its competitor.

Determine the Nash equilibrium. (v) Is this a prisoner's dilemma? How do you know?

The Nash equilibrium in this payoff matrix is demonstrated when both Firm 1 and Firm 2 elect to charge high prices. In addition to producing identical 5% increases in profit for both firms, neither firm has an incentive to lower prices, and thus neither firm stands to gain by unilaterally adjusting its pricing policy.

2.) Respond to the charge that immigrants flood the labor market and drive down wages in the U.S.

As the increasingly politicized nature of America's immigration debate has been compounded by the effects of a prolonged national recession, major media outlets and economic pundits have decried the so-called "wage-dampening" effect caused by unchecked illegal immigration (Camarota, 2011).

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While several studies have indeed demonstrated at list a causal link between the influx of undocumented workers, who are usually willing to perform hard labor for cheaper wages than American citizens, and reductions in real wage rates across a number of industries, the complexity of the issue demands a closer examination. Although critics of current immigration policy point to disturbing trends, such as the fact that "real hourly wages (inflation adjusted) for men without a high school education were 22% lower in 2007, before the recession, than in 1979 ... (or) real wages for meat packers were 45% lower in 2007 than in 1980" (Camarota, 2011), they often fail to mention how corporate consolidation within these industries has allowed employers to reduce wages with impunity. The reality is that the uniquely American brand of capitalism which has enabled this nation to become the world's preeminent superpower is highly dependent on the contributions of immigrants, both those who enter the.....

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