7) Two competing firms are each planning to introduce a new product. Each will decide whether to produceproduct A, product B, or product C. They make their choices at the same time. The resulting Payoffs areshown below:Firm 2ABCA-10.-105,3010, 20Firm 1 BC10,020, 10-20, -20-5,1515,-5-30, -30a) What outcomes, if any, are Pure Strategy Nash equilibria (PSNE)?b) If both firms use maximin strategy, what outcome will result?c) What is the cooperative outcome? (d) Which firm benefits most from the cooperative outcome? How much would that firm need tooffer the other to encourage it to collude? f

Part 2: ExplanationStep 1: Identify the Pure Strategy Nash Equilibria (PSNE) by looking for…

Answered: 7) Two competing firms are each…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Refer to the following payoff table: Firm A's Advertising Budget Multiple Choice Low O Medium High Firm A High Firm A High A Firm B Medium D G Low $900, $900 $1,000 $800 Firm B's Advertising Budget Medium B E H $820, $1,220 $950, $1,025 $875, $920 $800, $875 After the first round of elimination, are there any dominant strategies? If so, which one(s)? C Neither firm has a dominant strategy after the first round. F High $1,060, $1,100 $1,040, $1,000 $1,025, $1,175
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
Table 8. This table shows a game played between two players, A and B. The payoffs are given in the table as (Payoff to A, Payoff to B). A Select one: Up Middle Down Left (4,2) a. Middle-Center O b. Down-Center (3, 1) (1,3) B Center (2,5) (5, 3) (4,4) Refer to Table 8. This table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B). Which of the following outcomes represents a Nash equilibrium in the game? Right (3, 3) (5,2) (6, 1) O c. Up-Left O d. More than one of the above is a Nash equilibrium in this game.
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:
1. The table below shows a prisoner's dilemma in normal form. Players 1 and 2 each choose between D and C. D C D 2,2 1,10 10, 1 5,5 Answer the following questions. Remember to explain your reasoning. (a) If the game is played only once, what is the equilibrium in dominant strategies? (b) If the game is played three times in a row, what action does each player choose in every round? Suppose that the game is repeated indefinitely. The players do not discount the future. How- ever, the game ends with probability p € (0, 1) after each round. Assume that each player uses the following grim-trigger strategy. Each player chooses C in the first round. Each player chooses C in the current round if both players chose C in every previous round. Each player chooses D in the current round if either player chose D in some previous round. (c) If p = 1, is it optimal for each player to use the grim-trigger strategy above given that the other player uses the grim-trigger strategy above? [Hint: compare…
3. Consider the following game: K Out 2 2 1 9 Player 1 Player 1 X In A Y Player 2 0 2 B 5 5 a) Does the game have perfect information? Why/why not? b) Circle the subgames. c) Find all backward induction solutions. d) Below are written five strategy profiles. One of them is a subgame perfect equilibrium; circle it! One of them is not a Nash equilibrium; write "X" across it! ((Out, X), A) ((Out, Y), A) ((In, Y),B) ((Out, Y), B) ((In, X),B)
12. What is the subgame-perfect outcome from a finitely repeated game? a. Iterated Elimination Outcome played in each stage b. Backwards Induction Outcome played in each stage Nash Equilibrium played in each stage d. Nash Equilibrium in stage 1 only

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