Betty and John are opening a restaurant together. To proceed with the project two choices must be made: the type of restaurantand the location. Since Betty and John don't agree on where/what store to open, they've divided the decision into two parts.Betty will choose the type of restaurant and John the location. The payoff matrix is presented below.|Strip Mall1,02, 1|0, 4Arts District|4, 45, 03, 5Business DistrictSteak houseItalianThai|7, 3|1, 06, 9What is the Nash-Equilibrium?a. (Italian, Strip Mall)b. (Tahi, Arts District)c. (Thai, Business District)d. (Steak house, Business District)

Given the payoff matrix: If Betty fixes Steak house, John would choose Art district. But if John…

Answered: Betty and John are opening a restaurant…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Use the following payoff matrix for a simultaneous-move one-shot game to answer the accompanying questions. Player 2 Strategy C D E F Player 1 A 9, 8 14, 14 18, 25 12, 19 B 23, 13 10, 18 14, 26 19, 21 a. What is player 1’s optimal strategy? multiple choice Strategy B Strategy A Player 1 does not have an optimal strategy. b. Determine player 1’s equilibrium payoff. Prev
Two rival companies competing in the same market need to decide their plans for future expansion of their stores. The Table below shows the possible outcomes of their mutually interdependent actions (payoffs are profits in £m) Giga Company Titanic Conglomerate No Change Refurbishment of existing stores Large Expansion No Change 30, 40 25, 35 15, 24 Refurbishment of existing stores 35, 30 28, 32 18, 33 Large Expansion 12, 22 18, 20 20, 25 The Nash equilibrium: (A) does not exist. (B) occurs when both firms choose Refurbishment of existing stores. (C) occurs when both firms choose Large Expansion. (D) occurs when both firms choose No Change.
Question 2. Two students are working together to submit their Microeconomics mid-semester group coursework. Each student i can put in the effort x; that costs c(x;), in which x; E [0, 1]. This gives each student the utility of u(x1, x2). Formu- late this situation as a strategic game.
Player 1 Cooperate (C) Defect (D) If the game has a dominant strategy, what is it? There is none. If the game has a Nash equilibrium in pure strategies, what is it? There is none. Cooperate (C) 3,3 8,0 Cooperate (C) is a dominant strategy for both players. Defect (D) is a dominant strategy for both players. Cooperate (C) is a dominant strategy for 1, and Defect (D) is a dominant strategy for 2. C, C is the only Nash equilibrium. D, D is the only Nash equilibrium. C, C and D, D are both Nash equilibria. Player 2 Defect (D) 0,8 1,1
1
Refer to the following payoff table: Firm A's Advertising Budget Low Multiple Choice Medium High A D G $900, $900 Low $1,000, $800 Firm A High; Firm B Low Firm A Low; Firm B Low Firm B's Advertising Budget Medium B E H $820, $1,220 $950, $1,025 с F 1 High $875, $920 $800, $875 $1,025, $1,175 Using the method of successive elimination of dominated strategies, which strategies, if any, are eliminated after the first round? $1,060, $1,100 $1,040, $1,000
Player 1 Cooperate (C) Defect (D) Cooperate (C) 3,3 8,0 Player 2 Defect (D) 0,8 1,1 In general, a combination of strategies is a Nash equilibrium if ... Every player is choosing a best response against the other players' strategies. Every player has a positive payoff. The players maximize the sum of their payoffs. The players choose identical strategies. If the game is repeated, which cooperative actions could benefit both players? O Both players choose C. Player 1 chooses C, Player 2 chooses D. O Player 1 chooses D, Player 2 chooses C. Both players choose D.
An auditor and a taxpayer play the following strategic game. The auditor must choose whether to Audit (A) the taxpayer or not (N). The taxpayer independently decides whether to be Honest (H) in reporting her income or to Cheat (C). Since auditing is costly, the auditor prefers not to audit the taxpayer if she reports honestly, but prefers to audit if the axpayer cheats. If the taxpayer is caught cheating (i.e. if she cheats and is audited), then she receives a severe punishment. If she is not caught, she prefers cheating to being honest. Suppose that payoffs are as in the following matrix: Auditor Taxpayer C 4, -10 0,4 H A 2,0 N 4,0 (a) Find all (mixed strategy) Nash equilibria of this game. Solution: There is no NE in pure strategies. Moreover, since each pure strategy has a unique best response, there is no NE in which either player plays a pure strategy. If the Auditor chooses A with probability p and the Taxpayer chooses H with probability q, then the condition for the Auditor to…
7
Starbucks and Krispy Kreme are trying to decide whether or not to open a shop in the new Mall of Africa. They both prefer if the other firm opens a shop because they can draw bigger crowds but neither wants to be the only American-branded coffee shop in the Mall. The payoff matrix for this dilemma is below. Krispy Kreme Open Don't Open Starbucks Open (i) (ii) 5.5 2,6 Don't open (iii) (iii) 6,2 3.3 MCQ question 4 Find the Nash Equilibrium (Starbucks, Krispy Kreme) for the payoff matrix when the game is played simultaneously. A. (5;5) only. OB. (6,2) only. OC. (2,6) only OD. (3,3) only O E. There is no stable Nash Equilibrium.
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