Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 14, Problem 3.1P
To determine
Strategy minimizing potential losses.
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Suppose that Expresso and Beantown are the only two firms that sell coffee. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises:
Beantown
Advertise
Doesn't Advertise
Expresso
Advertise
8, 8
15, 2
Doesn't Advertise
2, 15
11, 11
For example, the upper right cell shows that if Expresso advertises and Beantown doesn't advertise, Expresso will make a profit of $15 million, and Beantown will make a profit of $2 million. Assume this is a simultaneous game and that Expresso and Beantown are both profit-maximizing firms.
If Expresso decides to advertise, it will earn a profit of
million if Beantown advertises and a profit of
million if Beantown does not advertise.
If Expresso decides not to advertise, it will earn a profit of
million if Beantown advertises and a profit of
million if Beantown does not advertise.
If Beantown advertises, Expresso makes a higher profit if…
Suppose that two firms, Lucky Bird and Full Coop, are the only sellers of seitan buffalo wings in some hypothetical market. The following payoff matrix gives the profit (in millions of dollars) earned by each company depending on whether or not it chooses to advertise:
Full Coop
Advertise
Doesn't Advertise
Lucky Bird
Advertise
9, 9
15, 3
Doesn't Advertise
3, 15
11, 11
For example, the lower left cell of the matrix shows that if Full Coop advertises and Lucky Bird does not advertise, Full Coop will make a profit of $15 million, and Lucky Bird will make a profit of $3 million. Assume this is a simultaneous game and that Lucky Bird and Full Coop are both profit-maximizing firms.
If Lucky Bird chooses to advertise, it will earn a profit of
million if Full Coop advertises and a profit of
million if Full Coop does not advertise.
If Lucky Bird chooses not to advertise, it will earn a profit of
million if Full Coop advertises and a profit of
million if…
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
Advertise
8, 8
15, 2
Creamland
Doesn't Advertise 2, 15
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 $15 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 s
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 s
million if Dairy King
advertises and a profit of s
million if Dairy King does not advertise.
If Dairy King advertises, Creamland makes a higher profit if it…
Chapter 14 Solutions
Principles of Economics (12th Edition)
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- 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 _________…arrow_forwardSuppose 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______million if Dairy King does not advertise. If Dairy King…arrow_forwardI'm not sure if I answered this question correctly.arrow_forward
- Consider a market with two firms, Coke and Pepsi, that produce soft drinks. Both firms must choose whether to charge a high price ($1.25) or a low price ($0.75) for their soft drinks. These price strategies with corresponding profits are depicted in the payoff matrix to the right. Coke's profits are in red and Pepsi's are in blue. Coke's dominant strategy is to pick a price of and Pepsi's dominant strategy is to pick a price of $ What is the Nash equilibrium for this game? O A. Coke will choose a price of $1.25 and Pepsi will choose a price of $0.75. B. Coke will choose a price of $0.75 and Pepsi will choose a price of $1.25. C. Coke and Pepsi will both choose a price of $0.75. D. Coke and Pepsi will both choose a price of $1.25. Price = $1.25 Pepsi Price $0.75 Coke Price = $1.25 Price $0.75 $775 $925 $775 $200 $200 $675 $925 $675arrow_forwardTo 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: (base to table) For example, the upper right cell shows that if Creamland advertises and Dairy King doesn't advertise, Creamland will make a profit of $15 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 $_____million if Dairy King does not advertise. If Dairy King advertises, Creamland makes a higher profit if it chooses (to…arrow_forwardConsider a market with two firms, Coke and Pepsi, that produce soft drinks. Both firms must choose whether to charge a high price ($1.25) or a low price ($0.65) for their soft drinks. These price strategies with corresponding profits are depicted in the payoff matrix to the right. Coke's profits are in red and Pepsi's are in blue. Coke's dominant strategy is to pick a price of dominant strategy is to pick a price of $ What is the Nash equilibrium for this game? A. Coke and Pepsi will both choose a price of $1.25. B. Coke will choose a price of $1.25 and Pepsi will choose a price of $0.65. and Pepsi's O C. Coke will choose a price of $0.65 and Pepsi will choose a price of $1.25. D. Coke and Pepsi will both choose a price of $0.65. Price = $1.25 Pepsi Price = $0.65 Price = $1.25 Price = $0.65 $800 Coke $900 $800 $175 $175 $700 $900 $700arrow_forward
- Answer the next question based on the following payoff matrix for a duopoly in which the numbers indicate the profit in thousands of dollars for a high-price or a low-price strategy. Firm X High Price Low Price X -$625 X $725 Y= $625 Y= $475 X-$475 X= $400 Y= $725 Y= $400 If both firms collude to maximize joint profits, the total profits for the two firms will be O A) $1,200,000. O B) $1,500,000. C) $1,400,000. OD) $1,250,000. Firm Y Low Price High Pricearrow_forwardSuppose 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 DoesntAdvertise Advertise 10, 10 18, 2 Creamland 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 $ million if Dairy King does not advertise. If Dairy King advertises, Creamland makes a higher profit if it…arrow_forwardThere are two competing firms, Jack and Jill represents a normal form of a game of two firms that produce a widget that is identical in quality. The rows in the table below correspond to the two different strategies available to firm Jack: price High or Low. The columns correspond to the same strategies for Jill: price High or price Low. The numbers in the tables show the profits. The number on the left (first number) is Jack firm profit, and the numbers on the right (second number) is Jill’s firm profit in millions of dollars. For example, If both price High (the upper left cell), then they each get 10 million in profits. If a firm prices high, the other firm prices low, consumers will have a choice to go to the low firm and the firm that prices high will get zero while the firm that prices low will get all market share. The game is played simultaneously, meaning same time and neither will know what the decision is.…arrow_forward
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