suppose there are only two firms that sell tablets: Padmania and Capturesque. The following payoff matrix shows the profit (in millions of dollars) each company will earn, depending on whether it sets a high or low price for its tablets. Capturesque Pricing High Low Padmania Pricing High 11, 11 2, 18 Low 18, 2 10, 10 For example, the lower-left cell shows that if Padmania prices low and Capturesque prices high, Padmania will earn a profit of $18 million, and Capturesque will earn a profit of $2 million. Assume this is a simultaneous game and that Padmania and Capturesque are both profit-maximizing firms. If Padmania prices high, Capturesque will make more profit if it chooses a ______ price, and if Padmania prices low, Capturesque will make more profit if it chooses a _____ price. If Capturesque prices ______ high, Padmania will make more profit if it chooses a price, and if Capturesque prices low, Padmania will make more profit if it chooses a _____ price. Considering all of the information given, pricing high ______ a dominant strategy for both Padmania and Capturesque.
suppose there are only two firms that sell tablets: Padmania and Capturesque. The following payoff matrix shows the profit (in millions of dollars) each company will earn, depending on whether it sets a high or low price for its tablets. Capturesque Pricing High Low Padmania Pricing High 11, 11 2, 18 Low 18, 2 10, 10 For example, the lower-left cell shows that if Padmania prices low and Capturesque prices high, Padmania will earn a profit of $18 million, and Capturesque will earn a profit of $2 million. Assume this is a simultaneous game and that Padmania and Capturesque are both profit-maximizing firms. If Padmania prices high, Capturesque will make more profit if it chooses a ______ price, and if Padmania prices low, Capturesque will make more profit if it chooses a _____ price. If Capturesque prices ______ high, Padmania will make more profit if it chooses a price, and if Capturesque prices low, Padmania will make more profit if it chooses a _____ price. Considering all of the information given, pricing high ______ a dominant strategy for both Padmania and Capturesque.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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suppose there are only two firms that sell tablets: Padmania and Capturesque. The following payoff matrix shows the profit (in millions of dollars) each company will earn, depending on whether it sets a high or low price for its tablets.
| Capturesque Pricing | |||
| High | Low | ||
| Padmania Pricing | High | 11, 11 | 2, 18 |
| Low | 18, 2 | 10, 10 |
For example, the lower-left cell shows that if Padmania prices low and Capturesque prices high, Padmania will earn a profit of $18 million, and Capturesque will earn a profit of $2 million. Assume this is a simultaneous game and that Padmania and Capturesque are both profit-maximizing firms.
If Padmania prices high, Capturesque will make more profit if it chooses a ______ price, and if Padmania prices low, Capturesque will make more profit if it chooses a _____ price.
If Capturesque prices ______ high, Padmania will make more profit if it chooses a price, and if Capturesque prices low, Padmania will make more profit if it chooses a _____ price.
Considering all of the information given, pricing high ______ a dominant strategy for both Padmania and Capturesque.
If the firms do not collude, what strategies will they end up choosing?
1. Padmania will choose a low price, and Capturesque will choose a high price.
2. Both Padmania and Capturesque will choose a high price.
3. Padmania will choose a high price, and Capturesque will choose a low price.
4. Both Padmania and Capturesque will choose a low price.
True or False: The game between Padmania and Capturesque is an example of the prisoners’ dilemma.
1. True
2. False
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