McLaren and Ferrari are competing for the Formula One Constructors' Championship and are deciding whether to increase their spending on their aerodynamic (aero) development. The matrix displays the payoffs to the team that result from each possible choice. Note that, due to other factors, the payoffs are not symmetrical. Assume that each team's goal is to earn as many points as possible. 0 Does McLaren have a dominant strategy? If so, what is i Yes. Their dominant strategy is to leave aero development spending unchanged. No, they do not have a dominant strategy. OYes. Their dominant strategy is to increase aero development spending. 6 Does Ferrari have a dominant strategy? If so, what is it? O No, they do not have a dominant strategy. Yes. Their dominant strategy is to increase aero development spending. Yes. Their dominant strategy is to leave aero development spending unchanged. Ferrari Raise spending Do not change spending Increase spending McLaren McLaren carns 360 points Ferrari earns 354 points McLaren earns 378 points Ferrari earns 153.5 points Do not change spending Attempt McLaren earns 142 points Ferrari earns 460 points McLaren earns 454 points Ferrari carns 400 points

McLaren and Ferrari are competing for the Formula One Constructors' Championship and are deciding whether to increase their spending on their aerodynamic (aero) development. The matrix displays the payoffs to the team that result from each possible choice. Note that, due to other factors, the payoffs are not symmetrical. Assume that each team's goal is to earn as many points as possible. 0 Does McLaren have a dominant strategy? If so, what is i Yes. Their dominant strategy is to leave aero development spending unchanged. No, they do not have a dominant strategy. OYes. Their dominant strategy is to increase aero development spending. 6 Does Ferrari have a dominant strategy? If so, what is it? O No, they do not have a dominant strategy. Yes. Their dominant strategy is to increase aero development spending. Yes. Their dominant strategy is to leave aero development spending unchanged. Ferrari Raise spending Do not change spending Increase spending McLaren McLaren carns 360 points Ferrari earns 354 points McLaren earns 378 points Ferrari earns 153.5 points Do not change spending Attempt McLaren earns 142 points Ferrari earns 460 points McLaren earns 454 points Ferrari carns 400 points

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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McLaren and Ferrari are competing for the Formula One
Constructors' Championship and are deciding whether to
increase their spending on their acrodynamic (aero)
development. The matrix displays the payoffs to the team
that result from each possible choice. Note that, due to
other factors, the payoffs are not symmetrical. Assume that
each team's goal is to earn as many points as possible.
Does McLaren have a dominant strategy? If so, what is
Yes. Their dominant strategy is to leave acro
development spending unchanged.
No, they do not have a dominant strategy.
OYes. Their dominant strategy is to increase aero
development spending.
0
Does Ferrari have a dominant strategy? If so, what is it?
No, they do not have a dominant strategy.
Yes. Their dominant strategy is to increase aero
development spending.
Yes. Their dominant strategy is to leave aero
development spending unchanged.
Ferrari
Raise
spending
Do not
change
spending
Increase
spending
McLaren carns
360 points
Ferrari
earns 354
points
McLaren
McLaren earns
378 points
Ferrari
earns 153.5
points
4
Do not change
spending
Attempt 1
McLaren earns
142 points
Ferrari
earns 460
points
McLaren earns
454 points
Ferrari
carns 400
points

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