Cheetah Air and Eagle Air are competitors in airlineindustry. First, Cheetah Air decides whether to begin airservice to Maui or not. Then, Cheetah Air learns whetherdemand for the air service is high or low. This informationabout the market spills over to Eagle Air. Both know thatdemand will be high with probability 60% and low with40%. After observing the market demand level, Eagle Airdoes enter or stay out. This situation is represented in thefollowing game tree. The first number of each vector atterminal nodes is Cheetah's payoff and the secondnumber is Eagle's payoff. Find the rollback equilibrium ofthe game.begin air service to Mauldemand for air service to Maul0.5 (high)Eagle Ab(Cheetah Air0.4 Dow)Eagle Airenter stay out enter stay outAt node 1, Eagle Air will choosenode 2, it will chooseat node 4,do not create Maul routedemand for air service to Maut0.6 (high)(Eagle Air)". Hint: type either "enter" or "stay out."0.40)enter stay out enterEagle Airstay outat node 3,at.

In game theory, a dominant strategy is a strategy that is the best choice for a player, regardless…

Answered: Cheetah Air and Eagle Air are comper…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a small town with two competing restaurants: Doug’s Diner and Betty’s Bistro. There is 1000profit to be made in the market. Each period, the restaurants simultaneously decide whether to offer high orlow quality food. In order to offer high quality food, each restaurant must hire an expert chef, which incursan additional cost of 100. The restaurants split the profit equally if they offer the same quality of food. Ifone restaurant offers high quality food while the other offers low quality food, the high quality restauranttakes four fifths of the profit and the low quality restaurant takes one fifth of the profit.(a) Draw up the normal form game matrix, showing the players, strategies, and payoffs.(b) Determine the Nash equilibrium of this game.(c) Explain how the restaurant owners could both be better off than in the Nash equilibrium if they wereable to cooperate. Is the town as a whole better off or worse off when the firms cooperate? Why or whynot
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. If you examine the decision tree in Figure 9.12 (orany other decision trees from PrecisionTree), you willsee two numbers (in blue font) to the right of each endnode. The bottom number is the combined monetaryvalue from following the corresponding path throughthe tree. The top number is the probability that thispath will be followed, given that the best strategy isused. With this in mind, explain (1) how the positiveprobabilities following the end nodes are calculated,(2) why some of the probabilities following the endnodes are 0, and (3) why the sum of the probabilitiesfollowing the end nodes is necessarily 1.
‘Lottery A’ refers to a lottery ticket that pays $2,000 with a probability of 0.3, $8,000 with a probability of 0.4, $12,000 with a probability of 0.2, and $18,000 with a probability of 0.1.What is the expected value of Lottery A?A) $7200B) $8000C) $9000D) $7900E) None of the above
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There are N>=2 collectors who engage in the auction of an antique. The collectorshave a common valuation of the antique, denoted by v, which is known to all. Thecollectors make a simultaneous bid. Let pn denote the bid by collector n = 1,....,N. The one with the highest bid wins the antique. The winner receives payoff v-pi.The other(s) receive zero payoff. If more than one collectors make the same highestbid, then they have an equal chance of winning the item. Prove that: A) It is not a Nash Equilibrium (NE) if the highest bid is v and onlyone collector bids this price.(b) It is not a NE if the highest bid is less than v.(c) It is a NE that the highest bid is v and more than one collector bidsthis price

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