3.(4)Two top shoe design houses, Vivace, and Mortissimo, can play it safe in the fall shows inMilan and introduce variations on last year's themes; buyers will accept these because they were successfulbefore. Or they can take a chance and introduce something more daring. The firms compete with eachother (no collusion) and their choices concerning shoe design affect each others' profits. The payoffs forthe "take a chance" or "play it safe" strategies are shown below:Payoffs: ProfitsVivaceMortissimoStrategyTake a chancePlay it safeTake a chance$3, $3$2, $7Play it safe$7, $2$6, $6a)Mortissimo's dominant strategy is:Play it safeTake a chanceMortisimo, does not have a dominant strategyCheck any of the outcomes that represent a Nash equilibrium:b)Upper leftUpper rightLower leftLower rightc)Going back to the original situation, suppose that the Italian government imposes a tax of $2 on anyfirm that takes a chance, and assume for simplicity that any firm taking a chance would absorb the full $2,lowering payoffs, rather than passing it on to customers. Are the firms better off or worse off? Explain.(Hint: consider the payoffs netted for the tax.)

Referenceshttps://en.wikipedia.org/wiki/Game_theory

Answered: 3. (4) Two top shoe design houses,…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Q17
Problem 3. For the following extensive form games (a) Find all the SPES of the following extensive-form games. (b) Turn each game into its strategic form and find all the PNES. Do they make sense in the initial game? (i) A M B C D E F G (1,0) (0, 1) (1,2) (4, 2) (2,0) (5, –1) (ii) L1 R1 (2,1) L2 R2 (1,2) L R (4, 1) (3,3) 2) (-)
3. The following is an interpretation of the rivalry between the United States (USA) and the Soviet Ünion (USSR) during the cold war. Each side has the choice of two strategies: Aggressive and Restrained. The payoff table is given as follows: USSR Restrained Aggressiveness Restrained 4,3 1,4 USA Aggressiveness 3,1 2,2 a) Consider this game when the two countries move simultaneously. Find all pure strategy Nash equilibria. b) Next consider three alternative ways in which the game could be played with sequential moves: (i) The USA moves first and the USSR moves second. (i) the USSR moves first and the USA moves second. (i) The USSR moves first, and the USA moves second, but the USSR has a further move after the USA moves. For each case, draw the game tree and find the subgame-perfect Nash equilibrium. c) What are the key strategic issues (commitment, credibility and so on) for the two countries. (Note: Be concise. Your answer should not exceed 300 words].
8. Collusive outcome versus Nash equilibrium Consider a remote town in which two restaurants, All-You-Can-Eat Café and GoodGrub Diner, operate in a duopoly. Both restaurants disregard health and safety regulations, but they continue to have customers because they are the only restaurants within 80 miles of town. Both restaurants know that if they clean up, they will attract more customers, but this also means that they will have to pay workers to do the cleaning. If neither restaurant cleans, each will earn $13,000; alternatively, if they both hire workers to clean, each will earn only $10,000. However, if one cleans and the other doesn't, more customers will choose the cleaner restaurant; the cleaner restaurant will make $18,000, and the other restaurant will make only $6,000. Complete the following payoff matrix using the information just given. (Note: All-You-Can-Eat Café and GoodGrub Diner are both profit-maximizing firms.) All-You-Can-Eat Café Cleans Up Doesn't Clean Up $ GoodGrub…
4. Two Stackelberg-competitors with no costs face the common market demand curve P=30−Q, where Q is the combined output of both firms. Firm 1, the leader, picks its output first. Then Firm 2, the follower, picks its output. How much output does Firm 2 produce in their sequential-move game? a) 3 units. b) 15 units. c) 15/2 units. d) 30 units.
6)Game Theory: The Prisoners’ Dilemma: Assume that the Wilson and Spalding athletic equipment companies are in a one-shot game for market share and profits, but that they have the option of choosing only one of two possible price strategies for basketballs: $20 or $80. Obviously if they choose different strategies, the firm with the lower price will win the entire market. The firms face the following payoff matrix (See Chap. 10). Wilson\ \Spalding Wilson $ 20 Price Wilson $ 80 Price Spalding $ 20 Price $ 400, $ 400 $ 1500, $ 0 Spalding $ 80 Price $ 0, $ 1500 $ 1000, $ 1000 What strategy will each firm choose? Why? Which strategy is dominant? Which strategy is preferred by each firm? What will be the outcome of the one-shot game? Where is the Nash equilibrium? Which outcome would be best for the two firms? What will happen if the game is repeated an infinite number of times?
1. Consider the following game matrix. Player A Answer: Top Bottom Left a, b e, f Player B Right c, d g, h (a) If top and left are strictly dominant strategies, then what do we know the relationship of the parameters? (b) If (top, left) is a Nash equilibrium, then what do we know the relationship of the parameters? Answer: (c) If top and left are strictly dominant strategies, will (top, left) be a Nash equilibrium? Why? Answer: (d) If (top, left) is a Nash equilibrium, must the strategies be strictly dominant strategies? Why? Answer:
2
Dizz Cut price Maintain price Perlis Cut price (-1,-1) A (2,-2) B Maintain price (-2,2) (1,1) D Figure 12 Payoff matrix for two firms in oligopoly Two firms, Perlis and Dizz, produce washing powder in a market characterised by oligopoly. Each firm can increase its market share and profits by cutting its price relative to its rival. However if both firms cut prices they both suffer a fall in profit. This situation may be characterised as a game and Figure 12 shows the payoff matrix for this game. Figure 12 also labels each cell in the payoff matrix with a letter, A, B, C or D. Based on the information in the payoff matrix, decide which cells, if any, correspond to a Nash equilibrium. Select one answer. Select one: O There is no Nash equilibrium O D O A O A and D
• The Chinese government has created a fund worth more than 20 trillion won to foster the semiconductor industry. Although there is a large technological difference between memory semiconductors, system semiconductors can be developed in a short period of time. The number of companies producing homogeneous quality products has increased. • Question (a) In the Cournot game, when the number of firms increases from 2 to n, compare the output, total output, and profit of each firm with N.E. in the Cournot model. • Question (b) If the number of companies participating in the semiconductor market increases to infinity, that is, in a perfectly competitive market, what will be the equilibrium point?
Please solve parts (c) and (d)
15. Match the description provided in the bank of options with the appropriate concept in the second table. Bank of options Letter A Consumers agree X is prefered to Y when both have equal prices Consumer preferences are changed Consumers obtain more information about product characteristics Consumers are targeted with advertising Characteristic that is consumed as complementary to product itself One time cost to enter an industry changes when the market size increases A firm that is a leader obtains a higher profit in a dynamic game One time cost to enter an industry is treated as a parameter of model A firm that is a follower obtains a higher profit in a dynamic game Consumers do not agree X is prefered to Y when both have equal prices Industry with monopoly and perfect competition characteristics An empirical model used to estimate product differentiation В C E F G H I J K Concept Second mover advantage First mover advantage Vertical product differentiation Horizontal product…

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