2. Consider the following game: Soapy Inc. and Suddies Inc. are the only producers of soap powder. They collude and agree to share the market equally. If neither firm cheats on the agreement, each makes $1 million profit. If either firm cheats, the cheat makes a profit of $1.5 million, while the complier incurs a loss of $0.5 million. If both cheat, they break even. Neither firm can monitor the other's actions. a) Construct the payoff matrix. b) What is the dominant strategy? c) What is the nash equilibrium for this game?
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- Please help with these two: 1. Consider a Duopoly model, in which two firms decide a quantity simultaneously. If they collude (setting the total quantity together), then each firm can earn (higher, or lower) profit than in the Cournot equilibrium. 2. Consider a collusion with two firms. The joint profit is maximized by setting quantity and price together. Each firm sells the agreed amount. However, believing that the other firm sells the agreed amount, there is always a temptation for the firm sell (more, or less) than the agreed amount.Stargell and Schmidt are brewing companies that operate in a duopoly (two-firm oligopoly). The daily marginal cost (MC) of producing a can of beer is constant and equals $0.80 per can. Assume that neither firm had any startup costs, so marginal cost equals average total cost (ATC) for each firm. Suppose that Stargell and Schmidt form a cartel, and the firms divide the output evenly. (Note: This is only for convenience; nothing in this model requires that the two companies must equally share the output.) Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and combined quantity of output if Stargell and Schmidt choose to work together. PRICE (Dollars per can) 200 1.80 1.60 Demand 1.40 1.20 1.00 0.80 0.60 0.40 0.20 MC-ATC MR 0 0 90 180 270 360 450 540 830 720 810 900 QUANTITY (Cans of beer) + Monopoly Outcome When they act as a profit-maximizing cartel, each company will produce 80 cans and charge $1.20 per can. Given this information, each…Consider the payoff matrix below representing two firms engaged in Bertrand Competition. Firm A is player 1 and Firm B is player 2. High price Low price High price 10, 12 -1, 13 Low price 12, 2 0, 3 What is Firm A's dominant strategy? Question 14Answer a. High price b. Low price c. Firm A does not have a dominant strategy
- Two gas stations in a rural town can engage in collusion over pricing. Because drivers often just stop at the first station they see as they go through town, price competition is not that severe in the first place. Assume either station can price gas at $0.30 above average total cost or $0.50 above average total cost. If they have equal prices, they split the market. If they have unequal prices, the lower price station gets 75% of the market (assume for simplicity no change in the size of the market; price elasticity of demand is very low for short term changes in the price of oil).a. Draw the normal form representation of this game. Identify the key aspects of the game.b. Identify the dominant strategy, if any, for each player.c. Identify any Nash equilibria.Consider the payoff matrix below representing two firms engaged in Bertrand Competition. Firm A is player 1 and Firm B is player 2. High price Low price High price 10, 12 -1, 13 Low price 12, 2 0, 3 What is Firm A's dominant strategy? Question 14Answer a. High price b. Low price c. Firm A does not have a dominant strategySuppose that Creamland and Dairy King are the only two firms that sell ice cream. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: Dairy King Advertise Doesn't Advertise Advertise 8, 8 15, 2 Creamland Doesn't Advertise 2, 15 11, 11 For example, the upper right cell shows that if Creamland advertises and Dairy King doesn't advertise, Creamland will make a profit of $15 million, and Dairy King will make a profit of $2 million. Assume this is a simultaneous game and that Creamland and Dairy King are both profit- maximizing firms. If Creamland decides to advertise, it will earn a profit of s million if Dairy King advertises and a profit of $ million if Dairy King does not advertise. If Creamland decides not to advertise, it will earn a profit of s million if Dairy King advertises and a profit of s million if Dairy King does not advertise. If Dairy King advertises, Creamland makes a higher profit if it…
- Consider two cigarette companies, PM Inc. and Brown Inc. If neither company advertises, the two companies split the market. If they both advertise, they again split the market, but profits are lower, since each company must bear the cost of advertising. Yet if one company advertises while the other does not, the one that advertises attracts customers from the other. Refer to Scenario 17-3. What is PM Inc.'s dominant strategy? to advertise only if Brown Inc. does not advertise to refrain from advertising, regardless of whether Brown Inc. advertises to advertise, regardless of whether Brown Inc. advertises to advertise only if Brown Inc. advertises1. Perloff Chapter 14, Exercise 3.13 3.13 A duopoly faces an inverse market demand function of p = 120 - Q. Firm 1 has a constant marginal cost of 20. Firm 2's constant marginal cost is 40. Calculate the output of each firm, market output, and price in (a) a collusive equilibrium or (b) a Nash-Cournot equilibrium. (Hint: See Solved Problem 14.10.) M4. Using a payoff matrix to determine the equilibrium outcome Suppose that Flashfry and Warmbreeze are the only two firms in a hypothetical market that produce and sell air fryers. The following payoff matrix gives profit scenarios for each company (in millions of dollars), depending on whether it chooses to set a high or low price for fryers. Flashfry Pricing High Low Warmbreeze Pricing High Low 11, 11 2,13 13, 2 10, 10 For example, the lower-left cell shows that if Flashfry prices low and Warmbreeze prices high, Flashfry will earn a profit of $13 million, and Warmbreeze will earn a profit of $2 million. Assume this is a simultaneous game and that Flashfry and Warmbreeze are both profit-maximizing firms. price, and if Flashfry prices low, Warmbreeze will make more profit if it If Flashfry prices high, Warmbreeze will make more profit if it chooses a chooses a price. If Warmbreeze prices high, Flashfry will make more profit if it chooses a chooses a price. Considering all of the…
- Consider a market in which there are two firms: A and B. Each firm produces a differentiated product and chooses its price. Assume that each firm can set price equal to $60 or $70. The payoffs associated with each set of prices are shown. If the firms choose price simultaneously, then the Nash equilibrium price for firm A is chooses price first and can commit to that price, then firm A will set its price equal to If firm A ○ A. $70; $60 B. $70; $70 ○ C. $60; $70 ○ D. $60; $60 Q Firm B's Price ✓ $60 $70 $1800 $1650 $60 $1800 $2250 Firm A's Price $2250 $2200 $70 $1650 $2200To advertise or not to advertise Suppose that Creamland and Dairy King are the only two firms that sell ice cream. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: Dairy King Advertise Doesn't Advertise Creamland Advertise 10, 10 18, 2 Doesn't Advertise 2, 18 11, 11 For example, the upper right cell shows that if Creamland advertises and Dairy King doesn't advertise, Creamland will make a profit of $18 million, and Dairy King will make a profit of $2 million. Assume this is a simultaneous game and that Creamland and Dairy King are both profit-maximizing firms. If Creamland decides to advertise, it will earn a profit of _________ million if Dairy King advertises and a profit of ________ million if Dairy King does not advertise. If Creamland decides not to advertise, it will earn a profit of __________ million if Dairy King advertises and a profit of _________…Deviating from the collusive outcome Please check the image there is a graph Mays and McCovey are beer-brewing companies that operate in a duopoly (two-firm oligopoly). The daily marginal cost (MC) of producing a can of beer is constant and equals $0.60 per can. Assume that neither firm had any startup costs, so marginal cost equals average total cost (ATC) for each firm. Suppose that Mays and McCovey form a cartel, and the firms divide the output evenly. (Note: This is only for convenience; nothing in this model requires that the two companies must equally share the output.) Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and combined quantity of output if Mays and McCovey choose to work together. When they act as a profit-maximizing cartel, each company will produce cans $ and charge $ per can. Given this information, each firm earns a daily profit of $ , so the daily total industry…