Suppose 2 gas stations must post their prices for regular gasoline at 6am each morning and cannot change their price during the day.Each gas station has a choice: charge a relatively “low” price or charge a relatively “high” price. The following shows their profit for the day of each gas station depending upon which price each gas station chooses: Gas Station B Low PriceHigh PriceGas Station ALow Price$2000, $900$500, $1500 High Price$1200, $1800$300, $2100Assume that this is a "one shot" game:Which strategy should Gas Station A choose? Is it a dominant strategy? Explain why or why not.Which strategy should Gas Station B choose? Is it a dominant strategy? Explain why or why notWhat is the outcome for each Gas Station? How much profits will each Gas Station earn? Explain.Does this game represent a prisoner’s dilemma situation? Why or why not?If the gas stations can talk the night before making their pricing decision and discuss their pricing strategies, what pricing strategy would each gas station choose the next morning? Assuming both gas stations act rationally, what will be the outcome of the game? Explain.

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Answered: uppose 2 gas stations must post their…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose 2 gas stations must post their prices for regular gasoline at 6am each morning and cannot change their price during the day.

Each gas station has a choice: charge a relatively “low” price or charge a relatively “high” price. The following shows their profit for the day of each gas station depending upon which price each gas station chooses:

	Gas Station B
		Low Price	High Price
Gas Station A	Low Price	$2000, $900	$500, $1500
	High Price	$1200, $1800	$300, $2100

Assume that this is a "one shot" game:

Which strategy should Gas Station A choose? Is it a dominant strategy? Explain why or why not.
Which strategy should Gas Station B choose? Is it a dominant strategy? Explain why or why not
What is the outcome for each Gas Station? How much profits will each Gas Station earn? Explain.
Does this game represent a prisoner’s dilemma situation? Why or why not?
If the gas stations can talk the night before making their pricing decision and discuss their pricing strategies, what pricing strategy would each gas station choose the next morning? Assuming both gas stations act rationally, what will be the outcome of the game? Explain.

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