Consider a market with two firms, Target and Wal-Mart, that sell CDs in their music department. Both stores must choose whether tocharge a high price ($25) or a low price (513) for the new Miley Cyrus CD.These price strategies with corresponding profits are depicted in the payoff matrix. Target's profits are in red and Wal-Mart's are in blue.Target's dominant strategy is to pick a price of $Wal-Mart's dominant strategy is to pick a price of $What is the Nash equilibrium for this game?OA. The Nash equilibrium is for Target to choose a price of $25 and Wal-Mart to choose a price of $13.OB. The Nash equilibrium is for Target to choose a price of $13 and Wal-Mart to choose a price of $25.OC. The Nash equilibrium is for Target and Wal-Mart to both choose a price of $25.OD. The Nash equilibrium is for Target and Wal-Mart to both choose a price of $13.OE. A Nash equilibrium does not exist for this game.Price $25TargetPrice = $25 Price $13$9,000$2,000$9,000$15,000Wal-Mart$15,000$5,500Price $13$2,000$5,500G

Identify the Dominant Strategy for Target:If Wal-Mart chooses $25:Target's payoff if choosing $25:…

Answered: Consider a market with two firms,…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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O Cell A O Cell C O Cell E O Cell I None of the above
Suppose that two clothing manufacturers, Lands’ End and L.L. Bean, are deciding what price to charge for very similar field coats. The cost of producing these coats is $100. The coats are very close substitutes, so customers flock to the seller that offers the lowest price. If both firms offer identical prices, each receives half the customers. For simplicity, assume that the two firms have the choice of pricing at prices of $103, $102, or $101. The profit each firm would earn at various prices (Lands’ Ends Profit, LL Bean’s Profit) is attached in the payoff matrix below: a.) What is the Nash equilibrium and expected profits to LL Bean and Lands’ End of this game? b.) Suppose this is a mixed strategy game in which LL Bean has a 25% percent chance of choosing a priceof $101, a 25% chance of choosing price of $102, and a 50% chance of choosing $103, while Lands End has a1/3 chance of choosing each strategy. What’s the expected payoff to LL Bean? c.) Suppose that in hopes of raising…
Two oligopolistic aluminium manufacturers are engaged in bitter competition with one another, Both firms, Big Aluminium Giant (BAG) and Little Aluminium Giant (LAG), are deciding whether to expand capacity or not. The table below shows payoffs for the firms under various scenarios. The first number in each cell is the payoff of LAG. Suppose the game is played once and each firm has to make its decision simultaneously. Does BAG have a dominant strategy? Explain clearly. Does LAG have a dominant strategy? Explain clearly. Big Aluminium Giant (BAG) Don't Expand 3, 4 4, 2 Еxpand Little Aluminium Giant Don't Expand 2, 3 Expand 1, 1 For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac).
Two oligopolistic firms have to decide on the pricing strategy. Each can either choose either a high or a low price. If they both choose a high price, each will make $12 million, but if they both choose a low price, each will make $ 8 million. If one sets a high price and other a low one, the low-priced firm will make $16 million, but the high-priced firm will make only $4 million. It is illegal for each firm to communicate with each other. a) Which strategy would both of them ultimately opt for? b) What would be the pay-off for this strategy?
There are two firms in the market. Denote the price and the quantity of firm j by p; and q; , respectively. Those two products are differentiated and the demand system is given by 91 = 100 – 2p1 + P2 92 = 100 + pi – 2p2 For simplicity, assume zero production costs, meaning that profit is equal to revenue. Consider the two-stage game in which firm 1 decides the price first and then firm 2 choose its price after observing firm 1's price. If firm 1's price is 24, what is the best response price of firm 2? Report only the value . Answer:
Consider two firms choosing quantities sequentially in a duopoly setting (i.e. the Stackelberg game). The two firms have identical products. Each firm has no fixed costs, and faces marginal costs equal to 5 plus the quantity it produces (i.e. MC = 5 + q). Market demand is given by Q = 46 - P, where Q is market quantity and P is market price. In equilibrium, how much will the firm that moves first produce?
Table 17-13 Two home-improvement stores (Lopes and HomeMax) in a growing urban area are interested in expanding their market share. Both are interested in expanding the size of their store and parking lot to accommodate potential growth in their customer base. The following game depicts the strategic outcomes that result from the game. Increases in annual profits of the two home-improvement stores are shown in the table below. HomeMaxi Increase the size of store and parking lot Do not increase the size of store and parking lot Increase the size of store and parking lot Lopes $1.0 million HomeMax $1.5 million. Lopes - $3.2 million HomeMax - $0.6 million Lopes Do not increase the size of store and parking lot Lopes - $0.4 million HomeMax $3.4 million) Lopes $2.00 million HomeMax $2.5 million Refer to Table 17-13. Increasing the size of its store and parking lot is a dominant strategy for
Two firms face the following payoff matrix shown to the right. Given these profits, Firm 2 wants to match Firm 1's price, but Firm 1 does not want to match Firm 2's price. Does either firm have a dominant strategy? Firm 1's dominant strategy Firm 2's dominant strategy and C Low Price Firm 2 High Price Low Price $8 $0 $0 $28 Firm 1 High Price $4 $24 $8 $24
On a duopolistic market, two tobacco firms are considering separately whether or not to engage in a marketing campaign. The market share gained from advertising will depend on whether the other competitor also advertises. The payoffs in millions of pounds for the firms are displayed in the following payoffs table where the first figure in the bracket denotes the payoff to A, and the second figure the payoff to B. Firm B\Firm A Firm A advertises Firm A no advertising Firm B advertises (60,75) (20,150) Firm B no advertising (120, 25) (100,120) a. Is there a dominant strategy? If so, what is the dominant strategy? Explain the meaning of a dominant strategy. b. Is there a Nash equilibrium? If so, what is it? Explain briefly what this implies. Explain the concept of Nash equilibrium. c. Does this advertising game pose a prisoners' dilemma? Justify your answer and explain what this means for the case of making advertising in cigarettes illegal.
Two firms A and B produce a product jointly. The total value to the two firms from the joint venture is given by V = √iA + √iB where iA and iB are the firms’ respective investment levels. After the investment levels have been chosen, the firms divide V equally. a) Find the Nash equilibrium investment levels, and the payoffs for each firm. b) Suppose that A and B merge. Find the optimal investment levels and the payoffs for the merged firm. Do the firms benefit from the merger? Why?
Suppose that Creamland and Dairy King are the only two firms that sell ice cream. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: Dairy King Advertise Doesn't Advertise Advertise 8, 8 15, 2 Creamland Doesn't Advertise 2, 15 11, 11 For example, the upper right cell shows that if Creamland advertises and Dairy King doesn't advertise, Creamland will make a profit of $15 million, and Dairy King will make a profit of $2 million. Assume this is a simultaneous game and that Creamland and Dairy King are both profit- maximizing firms. If Creamland decides to advertise, it will earn a profit of s million if Dairy King advertises and a profit of $ million if Dairy King does not advertise. If Creamland decides not to advertise, it will earn a profit of s million if Dairy King advertises and a profit of s million if Dairy King does not advertise. If Dairy King advertises, Creamland makes a higher profit if it…
Alcoa and Kaiser, duopolists in the market for primary aluminum ingot, choose prices of their 500 foot rolls of sheet aluminum on the first day of the month. The following payoff table shows their monthly payoffs resulting from the pricing decisions they can make. Suppose Alcoa and Kaiser repeat their pricing decision on the first day of every month. Suppose they have been cooperating for the past few months, but now the manager at Kaiser is trying to decide whether to cheat or to continue cooperating. Kaiser’s manager believes Kaiser can get away with cheating for two months, but he also believes that Kaiser would be punished for the next two months after cheating. After punishment, Kaiser’s manager expects the two firms would return to cooperation. Kaiser’s manager ignores the time-value of money and does not discount future benefits or costs. 4. Suppose you were asked to manage a golf course that was currently charging a uniform price. Would you suggest that the course continue…

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