### Transcription for Educational Website**Market Scenario: Kellogg and Post**Consider a market with two firms, Kellogg and Post, that sell breakfast cereals. Both companies must decide whether to charge a high price ($4.00) or a low price ($2.50) for their cereals.These price strategies, with corresponding profits, are depicted in the payoff matrix to the right. Kellogg's profits are in red and Post's are in blue.**Question 1: What is the cooperative equilibrium for this game?**1. **A.** The cooperative equilibrium is for Kellogg to choose a price of $2.50 and Post to choose a price of $4.00.2. **B.** The cooperative equilibrium is for Kellogg and Post to both choose a price of $2.50.3. **C.** The cooperative equilibrium is for Kellogg and Post to both choose a price of $4.00. ✅4. **D.** The cooperative equilibrium is for Kellogg to choose a price of $4.00 and Post to choose a price of $2.50.5. **E.** A cooperative equilibrium does not exist for this game.**Question 2: Is the cooperative equilibrium likely to occur?**The cooperative equilibrium:1. **A.** is likely to occur because the companies do not have dominant strategies.2. **B.** is unlikely to occur because the cooperative equilibrium is a Nash equilibrium.3. **C.** is likely to occur because charging $4.00 is a dominant strategy.4. **D.** is likely to occur because the game does not have a Nash equilibrium.5. **E.** is unlikely to occur because charging $4.00 is not a dominant strategy.**Explanation of the Payoff Matrix Diagram:**The payoff matrix shows the profits (in dollars) for Kellogg and Post based on their chosen pricing strategies:- **Kellogg charges $4.00 / Post charges $4.00:** - **Kellogg's profit:** $800 - **Post's profit:** $800- **Kellogg charges $4.00 / Post charges $2.50:** - **Kellogg's profit:** $50 - **Post's profit:** $900- **Kellogg charges $2.50 / Post charges $4.00:** -

Cooperative Equilibrium is defined as the equilibria of economic situations, i.e. a game where there…

Answered: Consider a market with two firms,…

Consider a market with two firms, Kellogg and Post, that sell breakfast cereals. Both companies must choose whether to charge a high price ($4.00) or a low price ($2.50) for their cereals.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

### Transcription for Educational Website

**Market Scenario: Kellogg and Post**

Consider a market with two firms, Kellogg and Post, that sell breakfast cereals. Both companies must decide whether to charge a high price ($4.00) or a low price ($2.50) for their cereals.

These price strategies, with corresponding profits, are depicted in the payoff matrix to the right. Kellogg's profits are in red and Post's are in blue.

**Question 1: What is the cooperative equilibrium for this game?**

1. **A.** The cooperative equilibrium is for Kellogg to choose a price of $2.50 and Post to choose a price of $4.00.
2. **B.** The cooperative equilibrium is for Kellogg and Post to both choose a price of $2.50.
3. **C.** The cooperative equilibrium is for Kellogg and Post to both choose a price of $4.00. ✅
4. **D.** The cooperative equilibrium is for Kellogg to choose a price of $4.00 and Post to choose a price of $2.50.
5. **E.** A cooperative equilibrium does not exist for this game.

**Question 2: Is the cooperative equilibrium likely to occur?**

The cooperative equilibrium:

1. **A.** is likely to occur because the companies do not have dominant strategies.
2. **B.** is unlikely to occur because the cooperative equilibrium is a Nash equilibrium.
3. **C.** is likely to occur because charging $4.00 is a dominant strategy.
4. **D.** is likely to occur because the game does not have a Nash equilibrium.
5. **E.** is unlikely to occur because charging $4.00 is not a dominant strategy.

**Explanation of the Payoff Matrix Diagram:**

The payoff matrix shows the profits (in dollars) for Kellogg and Post based on their chosen pricing strategies:

- **Kellogg charges $4.00 / Post charges $4.00:**
- **Kellogg's profit:** $800
- **Post's profit:** $800

- **Kellogg charges $4.00 / Post charges $2.50:**
- **Kellogg's profit:** $50
- **Post's profit:** $900

- **Kellogg charges $2.50 / Post charges $4.00:**
-

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true or false?