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6. Using a payoff matrix to determine the equilibrium outcome Suppose there are only two firms that sell tablets: Padmania and Capturesque. 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 tablets. Capturesque Pricing High Low High 11, 11 2, 18 Padmania Pricing Low 18, 2 10, 10 For example, the lower-left cell shows that if Padmania prices low and Capturesque prices high, Padmania will earn a profit of $18 million, and Capturesque will earn a profit of $2 million. Assume this is a simultaneous game and that Padmania and Capturesque are both profit-maximizing firms. If Padmania prices high, Capturesque will make more profit if it chooses a price, and if Padmania prices low, Capturesque will make more profit if it chooses a v price. If Capturesque prices high, Padmania will make more profit if it chooses a price, and if Capturesque prices low, Padmania will make more profit if it chooses a v price. Considering all of the information given, pricing high a dominant strategy for both Padmania and Capturesque. If the firms do not collude, what strategies will they end up choosing? O Padmania will choose a low price, and Capturesque will choose a high price. O Both Padmania and Capturesque will choose a high price. O Padmania will choose a high price, and Capturesque will choose a low price. O Both Padmania and Capturesque will choose a low price. True or False: The game between Padmania and Capturesque is an example of the prisoners' dilemma. O True O False

6. Using a payoff matrix to determine the equilibrium outcome Suppose there are only two firms that sell tablets: Padmania and Capturesque. 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 tablets. Capturesque Pricing High Low High 11, 11 2, 18 Padmania Pricing Low 18, 2 10, 10 For example, the lower-left cell shows that if Padmania prices low and Capturesque prices high, Padmania will earn a profit of $18 million, and Capturesque will earn a profit of $2 million. Assume this is a simultaneous game and that Padmania and Capturesque are both profit-maximizing firms. If Padmania prices high, Capturesque will make more profit if it chooses a price, and if Padmania prices low, Capturesque will make more profit if it chooses a v price. If Capturesque prices high, Padmania will make more profit if it chooses a price, and if Capturesque prices low, Padmania will make more profit if it chooses a v price. Considering all of the information given, pricing high a dominant strategy for both Padmania and Capturesque. If the firms do not collude, what strategies will they end up choosing? O Padmania will choose a low price, and Capturesque will choose a high price. O Both Padmania and Capturesque will choose a high price. O Padmania will choose a high price, and Capturesque will choose a low price. O Both Padmania and Capturesque will choose a low price. True or False: The game between Padmania and Capturesque is an example of the prisoners' dilemma. O True O False

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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6. Using a payoff matrix to determine the equilibrium outcome Suppose there are only two firms that sell tablets: Padmania and Capturesque. 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 tablets. Capturesque Pricing High Low High 11, 11 2, 18 Padmania Pricing Low 18, 2 10, 10 For example, the lower-left cell shows that if Padmania prices low and Capturesque prices high, Padmania will earn a profit of $18 million, and „Capturesque will earn a profit of $2 million. Assume this is a simultaneous game and that Padmania and Capturesque are both profit-maximizing firms. If Padmania prices high, Capturesque will make more profit if it chooses a price, and if Padmania prices low, Capturesque will make more profit if it chooses a price. If Capturesque prices high, Padmania will make more profit if it chooses a price, and if Capturesque prices low, Padmania will make more profit if it chooses a price. Considering all of the information given, pricing high a dominant strategy for both Padmania and Capturesque. If the firms do not collude, what strategies will they end up choosing? O Padmania will choose a low price, and Capturesque will choose a high price. O Both Padmania and Capturesque will choose a high price. O Padmania will choose a high price, and Capturesque will choose a low price. O Both Padmania and Capturesque will choose a low price. True or False: The game between Padmania and Capturesque is an example of the prisoners' dilemma. O True False
Transcribed Image Text:6. Using a payoff matrix to determine the equilibrium outcome Suppose there are only two firms that sell tablets: Padmania and Capturesque. 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 tablets. Capturesque Pricing High Low High 11, 11 2, 18 Padmania Pricing Low 18, 2 10, 10 For example, the lower-left cell shows that if Padmania prices low and Capturesque prices high, Padmania will earn a profit of $18 million, and „Capturesque will earn a profit of $2 million. Assume this is a simultaneous game and that Padmania and Capturesque are both profit-maximizing firms. If Padmania prices high, Capturesque will make more profit if it chooses a price, and if Padmania prices low, Capturesque will make more profit if it chooses a price. If Capturesque prices high, Padmania will make more profit if it chooses a price, and if Capturesque prices low, Padmania will make more profit if it chooses a price. Considering all of the information given, pricing high a dominant strategy for both Padmania and Capturesque. If the firms do not collude, what strategies will they end up choosing? O Padmania will choose a low price, and Capturesque will choose a high price. O Both Padmania and Capturesque will choose a high price. O Padmania will choose a high price, and Capturesque will choose a low price. O Both Padmania and Capturesque will choose a low price. True or False: The game between Padmania and Capturesque is an example of the prisoners' dilemma. O True False
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