Two firms face the following payoff matrix shown to the right. Given these profits, Firm 2 wants to match Firm 1's price, but Firm 1 does not want to match Firm 2's price. Does either firm have a dominant strategy? Firm 1's dominant strategy Firm 2's dominant strategy and C Low Price Firm 2 Low Price $8 $0 Firm 1 $28 High F $4 $

Two firms face the following payoff matrix shown to the right. Given these profits, Firm 2 wants to match Firm 1's price, but Firm 1 does not want to match Firm 2's price. Does either firm have a dominant strategy? Firm 1's dominant strategy Firm 2's dominant strategy and C Low Price Firm 2 Low Price $8 $0 Firm 1 $28 High F $4 $

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Firm A a. Low Price High Price Both firms will earn 0 C. Firm B Low Price 0,0 -10, 50 What is the payoff for each firm in this simultaneous game? High Price 50, -10 d. Both firms will earn 25 25, 25 b. Firm A will earn 50 and firm B will earn -10 Firm A will earn -10 and firm B will earn 50
3. The following is an interpretation of the rivalry between the United States (USA) and the Soviet Ünion (USSR) during the cold war. Each side has the choice of two strategies: Aggressive and Restrained. The payoff table is given as follows: USSR Restrained Aggressiveness Restrained 4,3 1,4 USA Aggressiveness 3,1 2,2 a) Consider this game when the two countries move simultaneously. Find all pure strategy Nash equilibria. b) Next consider three alternative ways in which the game could be played with sequential moves: (i) The USA moves first and the USSR moves second. (i) the USSR moves first and the USA moves second. (i) The USSR moves first, and the USA moves second, but the USSR has a further move after the USA moves. For each case, draw the game tree and find the subgame-perfect Nash equilibrium. c) What are the key strategic issues (commitment, credibility and so on) for the two countries. (Note: Be concise. Your answer should not exceed 300 words].
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 High Low For example, the lower-left cell shows that if Snapface prices low and Instashot prices high, Snapface will earn a profit of $18 million, and Instashot will earn a profit of $2 million. Assume this is a simultaneous game and that Snapface and Instashot are both profit-maximizing firms. Instashot Pricing High Low 11, 11 2, 18 18, 2 10, 10 If Snapface prices high, Instashot will make more profit if it chooses a high price, and if Snapface prices low, Instashot will make more profit if it chooses a price. If Instashot prices high, Snapface will make more profit if it chooses a chooses a ▼ price. Considering all of the information given, pricing high If the firms do not collude,…
6)Game Theory: The Prisoners’ Dilemma: Assume that the Wilson and Spalding athletic equipment companies are in a one-shot game for market share and profits, but that they have the option of choosing only one of two possible price strategies for basketballs: $20 or $80. Obviously if they choose different strategies, the firm with the lower price will win the entire market. The firms face the following payoff matrix (See Chap. 10). Wilson\ \Spalding Wilson $ 20 Price Wilson $ 80 Price Spalding $ 20 Price $ 400, $ 400 $ 1500, $ 0 Spalding $ 80 Price $ 0, $ 1500 $ 1000, $ 1000 What strategy will each firm choose? Why? Which strategy is dominant? Which strategy is preferred by each firm? What will be the outcome of the one-shot game? Where is the Nash equilibrium? Which outcome would be best for the two firms? What will happen if the game is repeated an infinite number of times?
Consider the following information for a static game. If you advertise and your rival advertises, you each will earn $5 million in profits. If you choose not to advertise and your rival chooses not to advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the firm that does not advertise will earn $1 million. Assuming that each player cares only about his or her own profits, the Nash equilibrium is? Explain your answer in three long paragraphs (intro body and conclusion)
Figure 11-5 Firm A Advertise Not Advertise Firm A 70 Firm A 30 Advertise Firm B 80 Firm B 150 Firm B Firm A 140 Firm A 90 Not Advertise Firm B 60 Firm B 100 Figure 11-5 shows the payoffs for two firms in a market that must decide whether or not to advertise. The dominant strategy is a) for Firm A to advertise but not Firm B. b) for neither firm to advertise. C) for both firms to advertise. d) for Firm B to advertise but not Firm A.
O Cell A O Cell C O Cell E O Cell I None of the above
Dizz Cut price Maintain price Perlis Cut price (-1,-1) A (2,-2) B Maintain price (-2,2) (1,1) D Figure 12 Payoff matrix for two firms in oligopoly Two firms, Perlis and Dizz, produce washing powder in a market characterised by oligopoly. Each firm can increase its market share and profits by cutting its price relative to its rival. However if both firms cut prices they both suffer a fall in profit. This situation may be characterised as a game and Figure 12 shows the payoff matrix for this game. Figure 12 also labels each cell in the payoff matrix with a letter, A, B, C or D. Based on the information in the payoff matrix, decide which cells, if any, correspond to a Nash equilibrium. Select one answer. Select one: O There is no Nash equilibrium O D O A O A and D
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 _________…
Speedy Bike's Advertising Power Bike's Advertising Budget Large Budget Small Large Small A $20 B $18 $20 с $35 $18 $35 D $25 $25 Refer to the payoff matrix. Suppose that Speedy Bike and Power Bike are the only two bicycle manufacturing firms serving the market. Both can choose large or small advertising budgets. If this is a one-time, simultaneous game, which cell represents the final outcome we would expect to occur?
Q4. Suppose two firms (firm 1 and firm 2) sell differentiated products and compete by setting prices. Firms have a zero cost of production. The demand functions are q₁ = 1- P₁ + P₂ and q2 = 1-P₂ + P₁ What will be the price charged by each firm in a simultaneous-move game?
Two small towns that are located near each other are thinking of building a fancy new shopping mall to attract business. However, building the mall is expensive, and will not be profitable unless the other town does not build the mall. The following table shows each town's payoffs under each of the possible outcomes, with the first number being Town A's payoff and the second number being Town B's payoff. The dominant strategy is for Town B Town A Build Mall Don't Build Mall Build Mall (-$100, -$100) ($2,000, -$500) Don't Build Mall (-$500, $2,000) (0, 0) A-Town B to build the mall and Town A will not B-neither town to build the mall C-both towns to build the mall D-Town A to build the mall and Town B will not