Question 2 (Choices Involving Strategy): Suppose there are two competing Gyms in a local town. Each gym is individually owned and has three pricing levels to choosefrom: Low, Medium and High (PL,PM, and PH). Consider the table below as the outcomes for each combination of strategies (they are yearly profits in the thousands). Can youpredict the outcome using ONLY iteratively dominated strategies? Why or why not? Find the Nash Equilibrium(a) using best responses. Is this the best outcome?Now, suppose that there was a sudden increase in the cost of equipment that meant the low price was no longer viable, and both choosing the medium price level meant only 50(thousand) profit for each gym. Nothing else changes. What is the pure and mixed strategy Nash equilibrium of this new game? Gym 1 is on the left and Gym 2 is on the top.The first number inside every box is Gym 1's profit and the second (after the comma) is Gym 2's profit. (10 Marks)PL PMPHPL125, 125200, 75375,50PM75, 250225, 225400, 100PH50,375100, 400325, 325

To answer this question, let's analyze the game theory problem step by step:1. Nash Equilibrium in…

Answered: Question 2 (Choices Involving…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Two car producers, Firm A operates in Country A and Firm B operates in Country B, are considering producing a new 8-seater Multi-Purpose Vehicle (MPV)for the international market. The payoff matrix is as follows (payoff values are in millions of dollars). The above payoffs imply that the international market demand is large enough to support only one producer. If both firms produce, both will sustain a loss. (i) Explain and solve for the Nash equilibrium in this game. (ii) Suppose the government of Country A decides to subsidise Firm A with $25 million if it produces. Revise the payoff matrix to account for this subsidy. What is the new equilibrium outcome? Compare the two outcomes and discuss the effect of the subsidy.
Which of the following best defines a Nash Equilibrium? A) A situation where each player maximizes their own payoff without regard to the strategies of others. B) A situation where no player can improve their payoff by unilaterally changing their strategy. C) A situation where players cooperate to achieve the highest collective payoff. D) A situation where each players strategy maximizes the opponents payoff.
The payoff matrix depicts potential payoffs in a non-sequential, non-repeating game. Blue numbers are for Player 1 and red numbers are for player 2. (This exact payoff matrix appears in 3 other questions on this exam.). The cooperative (collusive) equilibrium is: Player 1 (70,80) 0000 (30,20) (40,40) (10,90) Strategy C Strategy D Player 2 Strategy A 40, 40 10,90 Strategy B 30, 20 70, 80
Consider a beauty-contest game in which n players simultaneously pick a number between zero and 100 inclusive; the person whose number is closer to half of the average number wins a prize. What is the unique Nash equilibrium of this game? What number will a level-3 thinker pick?
Assume there are two firms X and Y, considering which of two alternative prices to charge, £25 or £19 for X and £20 or £15 for Y. The firms make their decisions simultaneously: i.e. neither firm knows the price choice of its rival. The various profits are illustrated in the following pay-off matrix: Strategies and payoffs for X are in blue and for Y in red. (a) What is firm Y’s best response to each of the two different prices firm X could charge? Does firm Y have a dominant strategy? (b)What is firm X’s best response to each of the different prices firm Y could charge? Does firm X have a dominant strategy? (C) What is/are the Nash equilibrium/equilbria? What is the most likely outcome of this game? Explain your answer.
Question 1 Consider the following game. Player 1 has 3 actions (Top, middle,Bottom) and player 2 has three actions (Left, Middle, Right). Each player chooses their action simultaneously. The game is played only once. The first element of the payoff vector is player 1’s payoff. Note that one of the payoffs to player 2 has been omitted (denoted by x). A) Suppose that the value of x is such that player 2 has a strictly dominant strategy. Find the solution to the game. What solution concept did you use to solve the game? B) Suppose that the value of x is such the player 2 does NOT have a strictly dominant strategy. Find the solution to the game. What solution concept did you use to solve the game?
Consider the following game matrix with two players- Player 1 and Player 2 with their respective strategies. Which of the following statements is correct such as x>y>b>a Players Player2 Player 1 A B C D (Y, Y) (b, x) (x, a) (AE) is the one of many Nash equilibria (C) is the unique Nash equilibria (C. D) is the unique Nash equilibria (A. E) and (B. F) are two Nash equilibria E (a, b) (x, y) (y, a) F (a,x) (a, b) (b, b)
Read-a-lot Bookstore and Frontier Books are competitors in the Carlton retail book market. Each has a choice of setting a low price or high price. The payoffs from the price choices are: Assume that the game is played sequentially with Frontier making a decision about its choice of price strategy, and then Read-a-lot, after observing Frontier’s strategy, chooses its price strategy. What is the best choice for Frontier? [To answer this question, you need to take into account your answer for question 1 regarding the best strategy for Read-a-Lot.] a. Low price b. High price c. Frontier is indifferent between High price and Low price d. It is not possible to identify a best choice for Frontier.
Profits for two competing firms depend on the decisions to advertise or not to advertise as follows: If neither firm advertises, each makes a weekly profit of $100. If one firm advertises while the other does not, the firm that advertises makes $120 while the firm that doesn’t advertise makes $60. If both firms advertise, each firm makes $80. (a) What is the Nash equilibrium? Is this outcome efficient, from the perspective of the two firms? (b) How does the outcome of the game change if the parties can make a binding agreement in advance about advertising practices? (c) How does the game change if it is repeated over the course of many weeks (but the firms cannot make a binding agreement about how much advertising they will do)?
Suppose that there are only two firms in a market in which demand is given by p = 64 - Q, where Q is the total production of the two firms. Each firm can choose either a low level of output, qL = 15, or a high level of output, qH = 20. The unit cost of production for both firms is $4. Write down the normal-form representation of the game in which the strategic variable for each firm is the quantity of output and the firms make their choices simultaneously. Find the pure strategy Nash equilibrium of this game (quantities produced and market price).
Economics Alpha and Beta are the only firms selling gyros in the upscale town of Delphi. Each firm must decide on whether to offer a discount to students to compete for customers. If one firm offers a discount but the other does not then the firm that offers the discount will increase its profit. The figure shows the payoff matrix for this game. Alpha Offer Don't offer Alpha eams S60,000 Alpha eams $20,000 What is the Nash equilibrium in this game? Offer Bota earns $60,000 Bota earns $100.000 O A. There is no Nash equilibrium Beta Alpha earns $100.000 Alpha earms $80,000 O B. Beta offers a student discount but Alpha does not Don't OC. Both Alpha and Beta offer a student discount Beta eams $20,000 Beta earns $80,000 offer O D. Alpha offers a student discount but Beta does not

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