Is the game shown by Figure 11.3 in the chapter (not this appendix) a zero-sum game or is it a positive-sum game? How can you tell? Are there dominant strategies in this game? If so, what are they? What cell represents a Nash equilibrium and why? Explain why it is so difficult for Uptown and RareAir to achieve and maintain a more favorable cell than the Nash equilibrium in this single-period pricing game. FIGURE 11.3 Profit payoff (in millions) for a two-firm oligopoly. Each firm has two possible pricing strategies.RareAir's strategies are shown in the top margin, and Uptown's in theleft margin. Each lettered cell of this four-cell payoff matrix representsone combination of a RareAir strategy and an Uptown strategy andshows the profit that combination would earn for each. Assuming nocollusion, the outcome of this game is Cell D, with both parties usinglow price strategies and earning $8 million of profits.RareAir's price strategyHighLowA$12B$15High$12$6$6D$8Low$15$8Uptown's price strategy%24

The above-described game is a positive-sum game as the pay-offs (profits) of each firm is positive.…

Answered: FIGURE 11.3 Profit payoff (in millions)…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Is the game shown by Figure 11.3 in the chapter (not this appendix) a zero-sum game or is it a positive-sum game? How can you tell? Are there dominant strategies in this game? If so, what are they? What cell represents a Nash equilibrium and why? Explain why it is so difficult for Uptown and RareAir to achieve and maintain a more favorable cell than the Nash equilibrium in this single-period pricing game.

FIGURE 11.3 Profit payoff (in millions) for a two-
firm oligopoly. Each firm has two possible pricing strategies.
RareAir's strategies are shown in the top margin, and Uptown's in the
left margin. Each lettered cell of this four-cell payoff matrix represents
one combination of a RareAir strategy and an Uptown strategy and
shows the profit that combination would earn for each. Assuming no
collusion, the outcome of this game is Cell D, with both parties using
low price strategies and earning $8 million of profits.
RareAir's price strategy
High
Low
A
$12
B
$15
High
$12
$6
$6
D
$8
Low
$15
$8
Uptown's price strategy
%24

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