20 8. Suppose there are two firms (F and F2) producing identical product competing for market share and each of which would like to dominate the other, if possible. They ca faced a choice between defending and cooperating. When either defends or o cooperate, neither is able to dominate the other. Assuming these preferences are reflected in their profit pay-offs. If both the players choice to defend, their profit will be 1.500 each. When one Firm defends and the other cooperates their profit level will be 5,000 an 1.000 respectively. Similarly, when both cooperate they end up with profit level of 3.000 each. With this in mind: a. Represent the above game in normal form/strategic form. b. Identify the dominant strategy for both firms and the dominant strategy equilibrium. c. Is the above equilibrium Nash equilibrium? Is it Pareto efficient allocation? Why? d. Assuming the game is one-shoot game and Firm 1 moves first represent it in extended form

20 8. Suppose there are two firms (F and F2) producing identical product competing for market share and each of which would like to dominate the other, if possible. They ca faced a choice between defending and cooperating. When either defends or o cooperate, neither is able to dominate the other. Assuming these preferences are reflected in their profit pay-offs. If both the players choice to defend, their profit will be 1.500 each. When one Firm defends and the other cooperates their profit level will be 5,000 an 1.000 respectively. Similarly, when both cooperate they end up with profit level of 3.000 each. With this in mind: a. Represent the above game in normal form/strategic form. b. Identify the dominant strategy for both firms and the dominant strategy equilibrium. c. Is the above equilibrium Nash equilibrium? Is it Pareto efficient allocation? Why? d. Assuming the game is one-shoot game and Firm 1 moves first represent it in extended form

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Does this game have a prisoner’s dilemma flavor? That is, could the n firms do better by jointly choosing their individual output? If so, which individual farmer’s quantity would maximize their joint profits? Why would one need a binding contract to enforce this agreement?
12. An important characteristic of a dominant strategy is that: Select one: a. it is the best strategy to dominate your opponents b. it always leads to a Nash equilibrium where all players equally well off c. it can prevent the game reaching a Nash equilibrium d. it is the best strategy for a player, regardless of whatever strategy the opponent chooses
3. The repeated prisoner's dilemma (PD) can be used as a simple framework to inves- tigate tacit collusion. Consider repeating the following stage game: A B A R, R 100, 24 B 24, 100 50, 50 where R is either 64 or 96. In each round, the players simultaneous choose an action (A or B). After both have made their choice the outcome is revealed, along with the payoffs for the round. Then a random number is drawn to determine whether the repeated game will continue for at least one more round. The probability the game will continue is c5, which is either ¹ or ³. 2 4 (a) Suppose the stage game were played just once (which is equivalent to c5 = 0). Find the Pareto efficient outcomes in the stage game. Does either player have a dominated strategy; if so, which? What is the one-shot Nash equilibrium pre- diction of the stage game? How does this prediction vary with the parameter R? (b) For the indefinitely repeated game, explain: i. Why both players choosing the strategy All B is a subgame…
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Q2
am. 112.
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Please no written by hand and no emage
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