Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
![Suppose that Snapface and Instashot are the only two firms in a hypothetical market that produce and sell polaroid cameras. The following payoff
matrix gives profit scenarios for each company (in millions of dollars), depending on whether it chooses to set a high or low price for cameras.
Snapface Pricing
Instashot Pricing
High
8,8 4,13
For example, the lower-left cell shows that if Snapface prices low and Instashot prices high Snapface will earn a profit of $13 million, and Instashot
will earn a profit of $4 million. Assume this is a simultaneous game and that Snapface and Instashot are both profit-maximizing firms.
of Snapface prices high, Instashot will make more profit if it chooses
of Instashot prices high Snapface will make more profit if it chooses a
it chooses a
price.
Considering all of the information given, pricing high
of the firms do not collude, what strategies will they end up choosing?
price, and if Snapface prices lows Instashot will make more profit if
price, and if Instashot prices low Snapface will make more profe if
a dominant strategy for both place and Instashot
Snapface will choose a high price, and Instashot will choose a low price.
Both Snapface and Instashot will choose a low price.
Both Snapface and Instashot will choose a high price
O Snapface will choose a low price, and Instashot will choose a high price](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Feee20bf5-99b3-4b37-aed8-c13423944632%2F22221e3f-32e5-47d4-9795-e8ef21590ebc%2F71h7ed_processed.png&w=3840&q=75)
Transcribed Image Text:Suppose that Snapface and Instashot are the only two firms in a hypothetical market that produce and sell polaroid cameras. The following payoff
matrix gives profit scenarios for each company (in millions of dollars), depending on whether it chooses to set a high or low price for cameras.
Snapface Pricing
Instashot Pricing
High
8,8 4,13
For example, the lower-left cell shows that if Snapface prices low and Instashot prices high Snapface will earn a profit of $13 million, and Instashot
will earn a profit of $4 million. Assume this is a simultaneous game and that Snapface and Instashot are both profit-maximizing firms.
of Snapface prices high, Instashot will make more profit if it chooses
of Instashot prices high Snapface will make more profit if it chooses a
it chooses a
price.
Considering all of the information given, pricing high
of the firms do not collude, what strategies will they end up choosing?
price, and if Snapface prices lows Instashot will make more profit if
price, and if Instashot prices low Snapface will make more profe if
a dominant strategy for both place and Instashot
Snapface will choose a high price, and Instashot will choose a low price.
Both Snapface and Instashot will choose a low price.
Both Snapface and Instashot will choose a high price
O Snapface will choose a low price, and Instashot will choose a high price
![True or False: The game between Snapface and Instashot is an example of the prisoners' dilemma.
O True
O False](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Feee20bf5-99b3-4b37-aed8-c13423944632%2F22221e3f-32e5-47d4-9795-e8ef21590ebc%2F361j5ue_processed.png&w=3840&q=75)
Transcribed Image Text:True or False: The game between Snapface and Instashot is an example of the prisoners' dilemma.
O True
O False
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