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The table below shows the payoff matrix for a game between Toyota and Honda, each f which is contemplating building a factory in a new market. Each firm can either build a small factory (and produce a small number of cars) or build a large factory (and produce a number of cars). Suppose no other car manufacturers are selling in this market. Honda's Decision- come would be that h factorion Small Factory High Industry Price Honda Profits: Small Factory $50 million Toyota's Decision Toyota Profits: $50 million Medium Industry Price Honda Profits: Large Factory Medium Industry Price Honda Profits: $30 million Toyota Profits: $65 million Large Factory $65 million Toyota Profits: $30 million $35 million Toyota Profits: $35 million a. Assuming that the demand curve for cars in this new market is negatively sloped and unchanging, which of the following explains the prices and profits shown in the payoff matrix? Low Industry Price Honda Profits: OA. At lower prices a larger combined output is produced and sold, but the profit margin (P-ATC) per vehicle apparently declines more than enough to offset the higher industry volume, yielding a smaller combined profit. OB. When the two firms build different size factories, yet price similarly, the firm choosing the larger factory gains at the expense of the other. OC. When the two firms build different size factories, yet price similarly, the firm choosing the smaller factory gains at the expense of the other. OD. All of the above are correct. E. Both A and B are correct.

The table below shows the payoff matrix for a game between Toyota and Honda, each f which is contemplating building a factory in a new market. Each firm can either build a small factory (and produce a small number of cars) or build a large factory (and produce a number of cars). Suppose no other car manufacturers are selling in this market. Honda's Decision- come would be that h factorion Small Factory High Industry Price Honda Profits: Small Factory $50 million Toyota's Decision Toyota Profits: $50 million Medium Industry Price Honda Profits: Large Factory Medium Industry Price Honda Profits: $30 million Toyota Profits: $65 million Large Factory $65 million Toyota Profits: $30 million $35 million Toyota Profits: $35 million a. Assuming that the demand curve for cars in this new market is negatively sloped and unchanging, which of the following explains the prices and profits shown in the payoff matrix? Low Industry Price Honda Profits: OA. At lower prices a larger combined output is produced and sold, but the profit margin (P-ATC) per vehicle apparently declines more than enough to offset the higher industry volume, yielding a smaller combined profit. OB. When the two firms build different size factories, yet price similarly, the firm choosing the larger factory gains at the expense of the other. OC. When the two firms build different size factories, yet price similarly, the firm choosing the smaller factory gains at the expense of the other. OD. All of the above are correct. E. Both A and B are correct.

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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The table below shows the payoff matrix for a game between Toyota and Honda, each of which is contemplating building a factory in a new market. Each firm can either build a small factory (and produce a small number of cars) or build a large factory (and produce a large number of cars). Suppose no other car manufacturers are selling in this market. Honda's Decision b. The cooperative outcome in this game would be that both firms build Small Factory factories. Toyota's Decision Large Factory Medium Industry Price Honda Profits: $30 million Toyota Profits: $65 million Low Industry Price Honda Profits Small Factory High Industry Price Honda Profits: $50 million Toyota Profits: $50 million Large Factory $65 million Toyota Profits: $30 million $35 million Toyota Profits: $35 million a. Assuming that the demand curve for cars in this new market is negatively sloped and unchanging, which of the following explains the prices and profits shown in the payoff matrix? Medium Industry Price Honda Profits: O A. At lower prices a larger combined output is produced and sold, but the profit margin (P-ATC) per vehicle apparently declines more than enough to offset the higher industry volume, yielding a smaller combined profit. O B. When the two firms build different size factories, yet price similarly, the firm choosing the larger factory gains at the expense of the other. O C. When the two firms build different size factories, yet price similarly, the firm choosing the smaller factory gains at the expense of the other. O D. All of the above are correct. E. Both A and B are correct.
Transcribed Image Text:The table below shows the payoff matrix for a game between Toyota and Honda, each of which is contemplating building a factory in a new market. Each firm can either build a small factory (and produce a small number of cars) or build a large factory (and produce a large number of cars). Suppose no other car manufacturers are selling in this market. Honda's Decision b. The cooperative outcome in this game would be that both firms build Small Factory factories. Toyota's Decision Large Factory Medium Industry Price Honda Profits: $30 million Toyota Profits: $65 million Low Industry Price Honda Profits Small Factory High Industry Price Honda Profits: $50 million Toyota Profits: $50 million Large Factory $65 million Toyota Profits: $30 million $35 million Toyota Profits: $35 million a. Assuming that the demand curve for cars in this new market is negatively sloped and unchanging, which of the following explains the prices and profits shown in the payoff matrix? Medium Industry Price Honda Profits: O A. At lower prices a larger combined output is produced and sold, but the profit margin (P-ATC) per vehicle apparently declines more than enough to offset the higher industry volume, yielding a smaller combined profit. O B. When the two firms build different size factories, yet price similarly, the firm choosing the larger factory gains at the expense of the other. O C. When the two firms build different size factories, yet price similarly, the firm choosing the smaller factory gains at the expense of the other. O D. All of the above are correct. E. Both A and B are correct.
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