Game Theory 1. In the game shown below, firms 1 and 2 must independently decide whether to charge high or low prices.Firm TwoFirm OneHigh PriceLow PriceHigh Price(10, 10)(5, -5)Low Price(5, -5)(0, 0)Which of the following are Nash equilibrium payoffs in the game?А. (0, 0)В.(5, -5)С.(-5, 5)D. (10, 10)

Equilibrium concepts:- There exist multiple equilibrium concepts in game theory. For single-period…

Answered: Game Theory

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Game Theory

1. In the game shown below, firms 1 and 2 must independently decide whether to charge high or low prices.
Firm Two
Firm One
High Price
Low Price
High Price
(10, 10)
(5, -5)
Low Price
(5, -5)
(0, 0)
Which of the following are Nash equilibrium payoffs in the game?
А. (0, 0)
В.(5, -5)
С.(-5, 5)
D. (10, 10)

Definition Definition Economic decision-making framework that analyzes how different players optimize their outcomes with given pay-offs corresponding to their available strategies. The assumptions of game theory are: The number of players or competitors are finite/limited; All participants are rational The rules of the game are known to every player; and Each participant has a finite set of actions. A common way in which game theory is presented as an ( m x n ) matrix in which m represents the strategies of row player and n represents the strategies of column player. There are several limitations of game theory: Many businesses have a large number of competitors, and selecting an optimal strategy in these circumstances is difficult; Real-life business operating environments are full of uncertainty and difficult to model as a game theory; and The assumption of rationality and utility maximization isn't always an accurate portrayal of human nature.

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