**The Prisoner's Dilemma in Oligopoly: Payoffs Between Two Firms**This diagram presents a classic example of the prisoner's dilemma applied to two firms, Firm A and Firm B, operating in an oligopoly market. Each firm has the option to either collude or compete, impacting their respective profits.**Diagram Details:**- **Columns:** - The top of the diagram represents Firm A’s strategies: "Collude, Produce 20m" on the left and "Compete, Produce 35m" on the right.- **Rows:** - The left side of the diagram represents Firm B’s strategies: "Collude, Produce 30m" on the top and "Compete, Produce 50m" on the bottom.**Payoff Matrix:**1. **Both Firms Collude:** - Firm A produces 20 million units, and Firm B produces 30 million units. - Payoffs: - Firm A: $200 million - Firm B: $300 million 2. **Firm A Competes, Firm B Colludes:** - Firm A produces 35 million units, Firm B produces 30 million units. - Payoffs: - Firm A: $300 million - Firm B: $170 million3. **Firm A Colludes, Firm B Competes:** - Firm A produces 20 million units, Firm B produces 50 million units. - Payoffs: - Firm A: $50 million - Firm B: $400 million 4. **Both Firms Compete:** - Firm A produces 35 million units, Firm B produces 50 million units. - Payoffs: - Firm A: $100 million - Firm B: $200 millionGiven these payoffs, one must factor in strategic decision-making to predict Firm A's profits. Consider the likelihood of each firm's strategies and how risk-averse they might be toward competition.**Question:**Given the payoffs shown, what can we predict Firm A's profits will be?1. $50 Million2. $100 Million3. $300 Million4. $200 Million

The Prisoner's Dilemma is a concept in game theory that illustrates a situation where two individuals, acting in their own self-interest, do not produce the most optimal outcome for both. It is a hypothetical scenario often used to analyze the concepts of cooperation and competition.To find the outcome of this game, let us find the Nash equilibrium. To find the Nash equilibrium best responses of the players will be marked. An outcome where payoffs of both the players are marked will be the Nash equilibrium. In this given matrix best responses of both the players is highlighted in yellow.Explanation of the above matrix:If firm B chooses to collude then the best response of firm A is to compete because it gives higher payoff ($300>$200, see row one). If firm B chooses to compete then the best response of firm A is again to compete because it gives higher payoff ($100>$50, see row two). If the firm A chooses to collude then the best response of firm B is to compete because it gives higher payoff ($400>$300, see column one). If the firm A chooses to compete then the best response of firm B is to compete because it gives higher payoff ($200>$170, see column two). The outcome of this game will be where the payoffs of both firms are marked. So the outcome of this game is to (compete, compete). Hence, firm A's profit will be $100million.Firm A's profit will be $100million.

Business

Economics

The prisoner's dilemma shown displays the payoffs associated with two firms: Firm A and Firm B. These firms are in an oligopoly and they can choose to either collude or compete FIRM B Collude Produce 20m Collude Produce 30m B: $300m profits A: $200m profits 1. $50 Million 2. $100 Million 3. $300 Million 4. $200 Million FIRM A Compete Produce 50m B: $400m profits A: $50m profits Compete Produce 35m Given the payoffs shown, what can we predict Firm A's profits will be? A: $300m profits B: $170m profits A: $100m profits B: $200m profits

The prisoner's dilemma shown displays the payoffs associated with two firms: Firm A and Firm B. These firms are in an oligopoly and they can choose to either collude or compete FIRM B Collude Produce 20m Collude Produce 30m B: $300m profits A: $200m profits 1. $50 Million 2. $100 Million 3. $300 Million 4. $200 Million FIRM A Compete Produce 50m B: $400m profits A: $50m profits Compete Produce 35m Given the payoffs shown, what can we predict Firm A's profits will be? A: $300m profits B: $170m profits A: $100m profits B: $200m profits

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

One game-theoretic explanation for why the United States never saw a widespread, coordinated lockdown to stop the spread of COVID-19 is that each state benefited from remaining open when its neighbors closed. Thus, the Nash equilibrium was for some states to remain open while others closed down. What kind of game best describes this situation? Anti-coordination game All of these categories could describe the situation. Repeated game Prisoners' Dilemma Coordination game
1. What do we mean by market power in economics? What are some ways firms can attain market power? How can we, as economists, know when a firm has "too much" market power? Give an example of a firm you think has a lot of market power.2. Chapter 3 is all about game theory. Imagine you are in charge of pricing at a firm that has 20% market share in an industry where the leading firm has 50% market share. Imagine that the leader increases prices on their products. How do you think you would react? Why?
Macmillan Leaming Monopolistic Competition, Oligopoly and Game Theory End of Chapter Problems Low-fare carriers such as Spirit, Allegiant, and Frontier have been successful at gaining market share by offering low base fares but then charging for everything from seat assignments to snacks to carry-on bags. What action would you recommend to the major airlines (Delta, United, and American) to avoid a prisoners' dilemma outcome? The major airlines should: Merge together to form a single competing airline, which would create cost savings and economies of scale. Decrease the prices of all their tickets so as to compete with the low-fare carriers. Break up their companies into more numerous firms, which would provide greater competition to the low-fare carriers. Create a new class of tickets that will be priced lower and offer fewer amenities, which would compete directly with the low-fare carriers.
To advertise or not to advertise Suppose that Creamland and Dairy King are the only two firms that sell ice cream. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: Dairy King Advertise Doesn't Advertise Creamland Advertise 10, 10 18, 2 Doesn't Advertise 2, 18 11, 11 For example, the upper right cell shows that if Creamland advertises and Dairy King doesn't advertise, Creamland will make a profit of $18 million, and Dairy King will make a profit of $2 million. Assume this is a simultaneous game and that Creamland and Dairy King are both profit-maximizing firms. If Creamland decides to advertise, it will earn a profit of _________ million if Dairy King advertises and a profit of ________ million if Dairy King does not advertise. If Creamland decides not to advertise, it will earn a profit of __________ million if Dairy King advertises and a profit of _________…
The Tampa Tribune and the St. Petersburg Times compete for readers in the Tampa Bay market for newspapers. Recently, both newspapers considered changing the prices they charge for their Sunday editions. Suppose they considered the following payoff table for making a simultaneous decision to charge either a low price of $0.50 or a high price of $1.00. Tampa’s profits are shown in regular type. St. Petersburg’s profits are shown in bold. 1. Tampa Tribune's dominant strategy is ____________ (low price, high price, it has no dominant strategy).
solve i and ii please.
Who first established the basic principles of game theory? Select one: a. Nash b. Bernoulli с. Кеynes d. Savage e. von Neumann Who developed a duopoly model to show how two firms compete in the price of a good they supply? Select one: a. Cournot b. Keynes c. Bertrand d. Robinson e. Chamberlain What pair provided the most complete formula for options pricing? Select one: a. von-Neumann-Morgenstern b. Black-Scholes c. Fischer Black d. Cournot-Nash e. Modigliani-Miller
Explain how the Prisoners' Dilemma game can be used as a way to describe the market structure of Oligopoly.