4. Using a payoff matrix to determine the equilibrium outcome Suppose there are only two firms that sell Blu-ray players: Movietonia and Videotech. The following payoff matrix shows the profit (in millions of dollars) each company will earn, depending on whether sets a high or low price for its players. Videotech Pricing High Low High 11, 11 2, 18 Movietonia Pricing Low 18, 2 10, 10 For example, the lower-left cell shows that Movietonia prices low and Videotech prices high, Movietonia will earn a profit of $18 million, and Videotech will earn a profit of $2 million. Assume this is a simultaneous game and that Movietonia and Videotech are both profit-maximizing firms. If Movietonia prices high, Videotech will make more profit if it chooses a v price, and if Movietonia prices low, Videotech will make more profit if it chooses a v price. If Videotech prices high, Movietonia will make more profit if it chooses a v price, and if Videotech prices low, Movietonia will make more profit if it chooses a v price. Considering all of the information given, pricing high a dominant strategy for both Movietonia and Videotech. If the firms do not collude, what strategies will they end up choosing? Movietonia will choose a low price, and Videotech will choose a high price. Movietonia will choose a high price, and Videotech will choose a low price. Both Movietonia and Videotech will choose a high price. Both Movietonia and Videotech will choose a low price.
4. Using a payoff matrix to determine the equilibrium outcome Suppose there are only two firms that sell Blu-ray players: Movietonia and Videotech. The following payoff matrix shows the profit (in millions of dollars) each company will earn, depending on whether sets a high or low price for its players. Videotech Pricing High Low High 11, 11 2, 18 Movietonia Pricing Low 18, 2 10, 10 For example, the lower-left cell shows that Movietonia prices low and Videotech prices high, Movietonia will earn a profit of $18 million, and Videotech will earn a profit of $2 million. Assume this is a simultaneous game and that Movietonia and Videotech are both profit-maximizing firms. If Movietonia prices high, Videotech will make more profit if it chooses a v price, and if Movietonia prices low, Videotech will make more profit if it chooses a v price. If Videotech prices high, Movietonia will make more profit if it chooses a v price, and if Videotech prices low, Movietonia will make more profit if it chooses a v price. Considering all of the information given, pricing high a dominant strategy for both Movietonia and Videotech. If the firms do not collude, what strategies will they end up choosing? Movietonia will choose a low price, and Videotech will choose a high price. Movietonia will choose a high price, and Videotech will choose a low price. Both Movietonia and Videotech will choose a high price. Both Movietonia and Videotech will choose a low price.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:4. Using a payoff matrix to determine the equilibrium outcome
Suppose there are only two firms that sell Blu-ray players: Movietonia and Videotech. The following payoff matrix shows the profit (in millions of
dollars) each company will earn, depending on whether it sets a high or low price for its players.
Videotech Pricing
High
Low
High
11, 11
2, 18
Movietonia Pricing
Low
18, 2
10, 10
For example, the lower-left cell shows that if Movietonia prices low and Videotech prices high, Movietonia will earn a profit of $18 million, and
Videotech will earn a profit of $2 million. Assume this is a simultaneous game and that Movietonia and Videotech are both profit-maximizing firms.
If Movietonia prices high, Videotech will make more profit if it chooses a
price, and if Movietonia prices low, Videotech will make more profit if it
chooses a v price.
If Videotech prices high, Movietonia will make more profit if it chooses a v price, and if Videotech prices low, Movietonia will make more profit if it
chooses a
v price.
Considering all of the information given, pricing high v a dominant strategy for both Movietonia and Videotech.
If the firms do not collude, what strategies will they end up choosing?
O Movietonia will choose a low price, and Videotech will choose a high price.
O Movietonia will choose a high price, and Videotech will choose a low price.
O Both Movietonia and Videotech will choose a high price.
O Both Movietonia and Videotech will choose a low price.
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