Game Theory 2. The figure below presents information for a game.Firm BFirm ALow PriceHigh PriceLow Price(2, 2)(10, -8)High Price(-8, 10)(6, 6)What are dominant strategies for firm A and firm B respectively?A. (low price, high price)B. (high price, low price)C. (high price, high price)D. (low price, low price)

A dominant strategy is such a strategy that a player will always select, no matter the strategy…

Answered: 2. The figure below presents…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Game Theory

2. The figure below presents information for a game.
Firm B
Firm A
Low Price
High Price
Low Price
(2, 2)
(10, -8)
High Price
(-8, 10)
(6, 6)
What are dominant strategies for firm A and firm B respectively?
A. (low price, high price)
B. (high price, low price)
C. (high price, high price)
D. (low price, low price)

Definition Definition Economic decision-making framework that analyzes how different players optimize their outcomes with given pay-offs corresponding to their available strategies. The assumptions of game theory are: The number of players or competitors are finite/limited; All participants are rational The rules of the game are known to every player; and Each participant has a finite set of actions. A common way in which game theory is presented as an ( m x n ) matrix in which m represents the strategies of row player and n represents the strategies of column player. There are several limitations of game theory: Many businesses have a large number of competitors, and selecting an optimal strategy in these circumstances is difficult; Real-life business operating environments are full of uncertainty and difficult to model as a game theory; and The assumption of rationality and utility maximization isn't always an accurate portrayal of human nature.

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