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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 choose from: 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 you predict 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 PMPH PL 125, 125 200, 75 375,50 PM 75, 250 225, 225 400, 100 PH 50,375 100, 400 325, 325

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 choose from: 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 you predict 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 PMPH PL 125, 125 200, 75 375,50 PM 75, 250 225, 225 400, 100 PH 50,375 100, 400 325, 325

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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 choose from: 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 you predict 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 PMPH PL 125, 125 200, 75 375,50 PM 75, 250 225, 225 400, 100 PH 50,375 100, 400 325, 325
Transcribed Image Text: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 choose from: 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 you predict 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 PMPH PL 125, 125 200, 75 375,50 PM 75, 250 225, 225 400, 100 PH 50,375 100, 400 325, 325
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