5) Little Kona is a small coffee company that is considering entering a market dominated by Big Brew. Each company's profit depends on whether Little Kona enters and whether Big Brew sets a high price or a low price: High Price Kona $2, Brew $3 Enter Little Kona Do Not Enter Kona $0, Brew $7 Does either player in this game have a dominant strategy? Does your answer in part (a) help you figure out what the other player should do? What is the Nash equilibrium? Is there only one? a. b. C. d. Big Brew e. Low Price Kona loses $1 Kona $0 Brew $1 Brew $2 Big Brew threatens Little Kona by saying "If you enter, we are going to set a low price, so you had better stay out." Do you think Little Kona should believe the threat? Why or why not? If the two firms could collude and agree on how to split the total profits, what outcome would they pick?

5) Little Kona is a small coffee company that is considering entering a market dominated by Big Brew. Each company's profit depends on whether Little Kona enters and whether Big Brew sets a high price or a low price: High Price Kona $2, Brew $3 Enter Little Kona Do Not Enter Kona $0, Brew $7 Does either player in this game have a dominant strategy? Does your answer in part (a) help you figure out what the other player should do? What is the Nash equilibrium? Is there only one? a. b. C. d. Big Brew e. Low Price Kona loses $1 Kona $0 Brew $1 Brew $2 Big Brew threatens Little Kona by saying "If you enter, we are going to set a low price, so you had better stay out." Do you think Little Kona should believe the threat? Why or why not? If the two firms could collude and agree on how to split the total profits, what outcome would they pick?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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8.8
COUNTRY B HIGH TARIFF LOW TARIFF HIGH TARIFF $1M $1 M $2M, $1.5 M COUNTRY A LOW $1.5 M, $ 2M $3м, $3 м TARIFF 1. What is the dominant strategy for: a. Country A b. Country B Is there an equilibrium dominant strategy for this game? 2. Find the Nash equilibrium a. Outcome = (High, high) b. Outcome = (High. Low) c. Outcome = (Low, high) d. Outcome = (Low, low) 3. What is the Maximin strategy for Country A and Country B? C.
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Game Theory
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