Topic 16: Game Theory and Chicken

This week we experimented with game theory using “The Prisoner’s Dilemma.” We found out that the Nash Equilibrium occurs when each player acts in his/her own best interest no matter what the other does. Even though there are communication between the two groups, each group still didn’t trust each other to not to confess, because they believed that other would betray them and made them get more years in jail. Most of the time, people make rational decisions, thinking about the benefits and the cost of different decision. However, sometimes people had a sudden whim to do something without thinking much. Therefore they might end up having in a worse situation. In our experiment, both group got the same amount of years for jail but the years weren’t the least. If in all rounds, each group were to stay quiet, we wouldn’t have that many years in jail. Therefore in this case, bad outcome is always inevitable. People try to avoid bad outcome, but sometimes it just happens due to the dishonesty of other group or wrong decision. For example, in communication, you might tell the other group that two of you would stay quiet to get the better outcome. However, during the decision making, each group might not trust what other had said earlier. This caused them to confess. If the other group doesn’t confess, that group will get more years in jail. Trust is what makes a better outcome.

Topic 15: What is Monopoly

What is monopoly? A monopoly is single firm of a good for which there isn’t any substitutes. There should also be high barriers to entry, which other firms cannot enter the market easily and provide the good. Monopolies are often created because of legal barriers such as patent laws. The monopoly has control both over the quantity produced and price charged; it also faces he entire demand curve for the good produced. Therefore, it will face a downward-sloping demand curve. It follows the general rule for profit maximization, MR=MC. As the monopolist does not know exactly how much consumers are willing to buy at particular prices, it must look for the optimum price. In the video, one comentor mentions some of the problems with monopolies, but he says that those aren’t what economists are concerned with. The problem refers to the inefficiency and the efficiency of the monopolies, because sometimes the deadweight lost arises. Monopolies are often looked at as bad, but they can also considered good because the average cost decreases in monopolies, which can produce a large enough of product. If given that in the long run monopolists spend all of their surplus in maintaining their monopoly position, I wouldn’t think it’s worthwhile to attain a monopoly because their won’t be an economic profit. 

Topic 14 : Productivity Experiment

In the experiment that we did in class was to demonstrate the law of diminish return. We tried to produce widgets (those paper rings). At first, there was only one labor. As the labor gradually increases, the products increase. However, the more the labor gets, the products start to decrease due the law of diminish return. This happens because the labor might not have enough equipment and the spaces are limited. Therefore people have to share the equipment and squeeze in the same limited space, which reduces the efficiency.

There were many problems when producing widgets. I think the main cause was that the manager didn’t carefully plan how the factory should run. Therefore in the beginning, people weren’t cooperating but just did there own products. Because of improper management, the number of products was quite messed up. I believe that for the company to improve productivity in the short-run, it’s number of labor should be well controlled, not too many and not to few. As for long run, there should be more capital, increasing the equipment and space. It seems that this experiment actually did symbolize the real life situation, because sometimes we produced really bad products due to the inconsistent skills.

Journal Topic 13: The Return of the Zeppelin

After seventy years, Zeppelin airships are coming back. However, technologies have improved their qualities. Now they are using helium instead of hydrogen. This airship is one of the three in the world. Therefore the market structure is oligopoly. Few markets compete with each other. Today, people might think that Airship is really unique that they want to try out at least one since there hasn’t been any airship up on the sky for a long time. Also, people’s income has increased over the years, which cause them to willing to pay to ride the Airship. The demand therefore will increase. Other determinants or variables that caused the increase of demand might be that the population increases, price of a substitute rises such as airplanes, the expected future price of an energy bar rises, and etc. Well, I think I might want to try to go on a airship travel once in my life, since it’s a rare thing do it. I think it’s quite expensive to do go on it. However, besides from the cost, I will like to look at the word in a different view. It seems that being inside an Airship is just way too cool. I think it will just be an experience for me. 

Journal Topic 12: Pizza for Pesos?

In the video “Pizza for Pesos”, it talked about Pizza Patron accepting both pesos and US dollars. It raised some controversies. For example some said that this benefit the illegal immigration from Mexico because people believe by doing that it is catering to the illegal immigrant market and weakening American culture. This video eventually deals with utility, because when people buy things, they need to concern the benefit of buying it, whether buying pizza in pesos or American dollars increase their utility. This concept therefore deals with consumer preference. Consumers choose what benefit them the most. For illegal immigrants, they might think that buying using pesos is better because they don’t need to exchange money. As for Americans, they might choose to use US dollars. A change in the exchange rate between Mexican Pesos and US Dollars would definitely have affect on Pizza Patron’s business, because people prefer the cheaper money. Moreover, when the value of the money decreases and the other remain the same, people buy less. Therefore their budget line shifts inward. However, when the value of the money increases it goes the other way around. I believe that using pesos might increase the chance of illegal immigrant, because they can cross the border and buy food without even changing the money. 

Journal Topic 11: Brand Names and Utility

After watching the video on “No Frills Grocery Shopping,” I was quite shocked. I never know that there were actually grocery stores that sell products that have no big name brans. Moreover, customer’s annual household income is $65,000. For me, I believe that big brand names have a higher utility or sense of satisfaction. Even though it might be more expensive, I believe that those big brands taste better that’s why they became famous. Another issue I really considered is the quality and how those products were made. I believe that those private brand names are more likely to have problems in their process of making the products. In addition, their raw materials might not be as good as those in the big brand. I feel that it’s safer to buy things from big brands. However, some times, I actually choose the ones that cheaper. Those are the things I just buy once in a while. If I have to use one specific thing a lot of time, I probably will buy products from big brands, because I wouldn’t want to risk my health since in news, it often says that private brand has some sanitation problems. For example, I wouldn’t want to buy a random brand chocolate from a store, because most of the time it’s not delicious at all. I would prefer M&M, which gives the most utility for me. 

Journal Topic 10: Consumer Preference and Utility - Skechers

Skechers is an athletic shoe company that started in 1992 and is one of the well-recognized shoe companies. They target on customer needs, choose the right style, and are used limited resources to provide customer good qualities of shoes. The company do market research to evaluate consumer needs by analyzes the process of customers. It promotes through personal selling, sales promotion (short term), public relations, and advertising, which contains all form of media. For example, their products are in magazines, TV shows, internet, and all other media. Skechers uses target market, which target people between ages of 12 and 24. In identifying market segments to target the right customers, it uses geographical, demographic, psychographic, and product needs. It also differentiates itself from other shoe companies by investing time that builds the brand that carries lifestyle and cool footwear. It also assures maximum distribution potential without overreaching its market.

There are a lot of products that have high utility and there are those that have really low utility for me. For example, I spent a lot of money on chocolate, because they are just way too delicious. Chocolate just makes my day happy. However, diamonds for me has a low utility. I don’t get the point of diamonds. They are shiny, but you can’t do anything with it.