Class ExerciseChapter 13: Game TheoryTwo firms are in the chocolate market. Each can choose to go for thehigh end of the market (high quality) or the low end (low quality).Resulting profits are given by the following payoff matrix:Firm 2Low-20, -30High 100, 800Firm Low1High900, 60050, 50a. What outcomes, if any, are Nash equilibria?b. If the managers of both firms are conservative and each follows amaximin strategy, what will be the outcome?c. What is the cooperative outcome?d. Which firm benefits most from the cooperative outcome? Howmuch would that firm need to offer the other to persuade it tocollude?

Nash equilibrium occurs when each player in the game chooses their optimal strategy given the…

a. What outcomes, if any, are Nash equilibria? b. If the managers of both firms are conservative and each follows a maximin strategy, what will be the outcome? c. What is the cooperative outcome? d. Which firm benefits most from the cooperative outcome? How much would that firm need to offer the other to persuade it to collude?

a. What outcomes, if any, are Nash equilibria? b. If the managers of both firms are conservative and each follows a maximin strategy, what will be the outcome? c. What is the cooperative outcome? d. Which firm benefits most from the cooperative outcome? How much would that firm need to offer the other to persuade it to collude?

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Chapter1: Making Economics Decisions

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Question

Class Exercise
Chapter 13: Game Theory
Two firms are in the chocolate market. Each can choose to go for the
high end of the market (high quality) or the low end (low quality).
Resulting profits are given by the following payoff matrix:
Firm 2
Low
-20, -30
High 100, 800
Firm Low
1
High
900, 600
50, 50
a. What outcomes, if any, are Nash equilibria?
b. If the managers of both firms are conservative and each follows a
maximin strategy, what will be the outcome?
c. What is the cooperative outcome?
d. Which firm benefits most from the cooperative outcome? How
much would that firm need to offer the other to persuade it to
collude?

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