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Two firms face the following payoff matrix shown to the right. Given these profits, Firm 1 does not want to match Firm 2's price? This is Does either firm have a dominant strategy? Firm 1's dominant strategy strategy What is the Nash equilibrium to this game? OA. The Nash equilibrium is for both firms to pick the low price. OB. The Nash equilibrium is for both firms to pick the high price. OC. The Nash equilibrium is for Firm 1 to pick the low price and for Firm 2 to pick the high price. and Firm 2's dominant OD. The Nash equilibrium is for Firm 1 to pick the high price and for Firm 2 to pick the low price. O E. This game does not have a Nash equilibrium. Low Price Firm 2 High Price Low Price $8 $0 $0 $24 Firm 1 High Price $4 $24 $8 $28 K

Two firms face the following payoff matrix shown to the right. Given these profits, Firm 1 does not want to match Firm 2's price? This is Does either firm have a dominant strategy? Firm 1's dominant strategy strategy What is the Nash equilibrium to this game? OA. The Nash equilibrium is for both firms to pick the low price. OB. The Nash equilibrium is for both firms to pick the high price. OC. The Nash equilibrium is for Firm 1 to pick the low price and for Firm 2 to pick the high price. and Firm 2's dominant OD. The Nash equilibrium is for Firm 1 to pick the high price and for Firm 2 to pick the low price. O E. This game does not have a Nash equilibrium. Low Price Firm 2 High Price Low Price $8 $0 $0 $24 Firm 1 High Price $4 $24 $8 $28 K

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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**Payoff Matrix Analysis for Two Competing Firms** Two firms face the following payoff matrix: | | Firm 1: Low Price | Firm 1: High Price | |-----------------------|-------------------|--------------------| | **Firm 2: Low Price** | (0, 0) | (8, 4) | | **Firm 2: High Price**| (24, 8) | (0, 24) | **Questions:** 1. **Firm 1's Strategy:** - Given these profits, Firm 1 does not want to match Firm 2's price. This is _______. 2. **Dominant Strategy:** - Does either firm have a dominant strategy? - Firm 1's dominant strategy: _______ - Firm 2's dominant strategy: _______ 3. **Nash Equilibrium:** - What is the Nash equilibrium for this game? - A. The Nash equilibrium is for both firms to pick the low price. - B. The Nash equilibrium is for both firms to pick the high price. - C. The Nash equilibrium is for Firm 1 to pick the low price and for Firm 2 to pick the high price. - D. The Nash equilibrium is for Firm 1 to pick the high price and for Firm 2 to pick the low price. - E. This game does not have a Nash equilibrium. **Diagram Explanation:** - The graph provided is a typical payoff matrix showing profit outcomes for two firms based on their pricing strategies (Low Price or High Price). - Each cell in the matrix presents a pair of outcomes; the first number is the payoff for Firm 1, and the second is for Firm 2. - For each strategy combination: - **(0, 0):** Both firms choose Low Price. - **(8, 4):** Firm 1 chooses High Price, Firm 2 chooses Low Price. - **(24, 8):** Firm 1 chooses Low Price, Firm 2 chooses High Price. - **(0, 24):** Both firms choose High Price.
Transcribed Image Text:**Payoff Matrix Analysis for Two Competing Firms** Two firms face the following payoff matrix: | | Firm 1: Low Price | Firm 1: High Price | |-----------------------|-------------------|--------------------| | **Firm 2: Low Price** | (0, 0) | (8, 4) | | **Firm 2: High Price**| (24, 8) | (0, 24) | **Questions:** 1. **Firm 1's Strategy:** - Given these profits, Firm 1 does not want to match Firm 2's price. This is _______. 2. **Dominant Strategy:** - Does either firm have a dominant strategy? - Firm 1's dominant strategy: _______ - Firm 2's dominant strategy: _______ 3. **Nash Equilibrium:** - What is the Nash equilibrium for this game? - A. The Nash equilibrium is for both firms to pick the low price. - B. The Nash equilibrium is for both firms to pick the high price. - C. The Nash equilibrium is for Firm 1 to pick the low price and for Firm 2 to pick the high price. - D. The Nash equilibrium is for Firm 1 to pick the high price and for Firm 2 to pick the low price. - E. This game does not have a Nash equilibrium. **Diagram Explanation:** - The graph provided is a typical payoff matrix showing profit outcomes for two firms based on their pricing strategies (Low Price or High Price). - Each cell in the matrix presents a pair of outcomes; the first number is the payoff for Firm 1, and the second is for Firm 2. - For each strategy combination: - **(0, 0):** Both firms choose Low Price. - **(8, 4):** Firm 1 chooses High Price, Firm 2 chooses Low Price. - **(24, 8):** Firm 1 chooses Low Price, Firm 2 chooses High Price. - **(0, 24):** Both firms choose High Price.
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