Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Chapter 15, Problem 10MC
To determine
Repeated game.
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Students have asked these similar questions
what are some real-life examples of infinte and finite games?
Two firms are considering going out of business and selling their assets. Each considers what happens if the other goes out of business. The payoff
matrix below shows the net gain or loss to each firm
Firm A
Staya in business
Sells business
Firm B Stays in business A gains $90 million A gains $70 million
B gains $70 million B gains $40 million
A gains $40 million A gains S10 million
B gains $80 million B gains $30 million
Sells business
Refer to Table. The dominant strategy
for firm B is to not stay in business and there is no dominant strategy for firm A causing a 540 milion gain for firm A at the Nash equilibrium,
for both firms is to stay in business causing a $70 million gain for firm B at the Nash equilibrium.
for both firms is to not stay in business causing a $10 million gain for firm A at the Nash equilibrium.
for firm Ais to stay in business and there is no dominant strategy for firm B causing a $80 million gain for firm B.
I am struggling with this question for a Game Theory course. It would be great to have a visual breakdown of how to solve it so that I understand what to do for the rest of the problems.
Chapter 15 Solutions
Managerial Economics: A Problem Solving Approach
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Similar questions
- 1. What do we mean by market power in economics? What are some ways firms can attain market power? How can we, as economists, know when a firm has "too much" market power? Give an example of a firm you think has a lot of market power.2. Chapter 3 is all about game theory. Imagine you are in charge of pricing at a firm that has 20% market share in an industry where the leading firm has 50% market share. Imagine that the leader increases prices on their products. How do you think you would react? Why?arrow_forwardplease only do: if you can teach explain each partarrow_forwardN: $30 V: $130 High price New firm N: $50 V: $100 Low price Advertise Verizon N: $60 V: $140 Do not advertise Expand High price New New firm firm Low price N: $70 V: $90 Do not N: $30 V: $170 The figure shown displays the choices that could be made by Verizon and a new firm in the industry. The payoffs are the profits (in millions) these companies will earn as a result of their choices. What will be the outcome of this game? Multiple Choice The new firm will expand; Verizon will advertise; the new firm will choose high prices. The new firm will expand; Verizon will advertise; the new firm will choose low prices. The new firm will expand; Verizon will not advertise; the new firm will choose high prices. The new firm will not expand. еxpandarrow_forward
- 5. When McDonald's Corp. reduced the price of its Big Mac by 75 percent if customers also purchased French fries and a soft drink, The Wall Street Journal reported that the company was hoping the novel promotion would revive its U.S. sales growth. It didn't. Within two weeks sales had fallen. Using your knowledge of game theory, what do you think disrupted Mcdonald's plans?arrow_forwardQuestion 3: There are two pubs: Pub A and Pub B. Each can charge its own price for beer, either $2, $4, or $5. The payoff table below shows the profit earned by each Pub for the different beer price combinations that each charge. There are nine different scenarios. Pub B P = $2 10, 10 12, 14 15, 14 P = $4 14, 12 20, 20 15, 28 P = $5 14, 15 28, 15 25, 25 P= $2 P= $4 P = $5 Pub A Does each pub have a dominant strategy and if so what is it? What is the Nash equilibrium or equilibria (multiple equilibrium)? Show your logic, briefly. a. b.arrow_forwardSuppose that Lionel Messi is negotiating a contract with FC Barcelona. Messi has an offer from Real Madrid for $20 million a year. If he signs with FC Barcelona, they will earn $90 million in revenue from the signing. FC Barcelona's next best option is to sign Cristiano Ronaldo. They would earn $70 million from signing Ronaldo and would pay him a contract of $10 million. Messi's bargaining power is w = 1/2. a) What is the negotiated salary between Messi and FC Barcelona under Nash Bargaining? What is Messi's surplus and what is FČ Barcelona's surplus? b) Due to an injury, FC Barcelona would only earn $50 million from signing Ronaldo but everything else remains the same. What is the negotiated salary between Messi and FC Barcelona under Nash Bargaining? What is Messi's surplus and what is FC Barcelona's surplus?arrow_forward
- List five types of infinitely repeated gamesarrow_forwardASAP!! PLEASEarrow_forwardCan anyone help me solve this question by using the game theory concept? Imagine there are 10 factories on the riverbank. Treating wastewater is expensive and reduces profits. . They compete with each other and so want to keep their costs minimum as well. Will they treat and clean waste before throwing in the river? If not, could they cooperate with each other to ensure each treats water before releasing in the river? If not, what other ‘solutions’ are possible?arrow_forward
- Megan and Martha own competing hair salons that are in the same neighborhood. They are both considering offering their clients discounts in order to increase business. The payoff matrix shows their yearly incomes in thousands of dollars if they offer and do not offer discounts to their customers. If Megan offers a discount, Martha should ________. If Megan offers no discount, Martha should ________. A-not discount; discount. B-not discount; not discount. C-discount; not discount D-discount; discount. E-indeterminatearrow_forwardassuming that you own one of three gas stations in a little town and you and the other gas station owners decide you want to "help each other out" so everyone can make more money." What arrangements could you make so that all three owners make more money? Would these arrangements make the three gas stations a cartel?arrow_forward3.4 Bernie and Leona were arrested for money laundering and were interrogated separately by the police. Bernie and Leona were each presented with the following independent offers. If one confesses and the other doesn't, the one who confesses will go free and the other will receive a 20-year prison sentence; if both confess, each will receive a 10-year prison sentence. Bernie and Leona both know that without any confessions, the police only have enough evidence to convict them of the lesser crime of tax evasion, and each would then receive a 2-year prison sentence. a. Use the information to construct a payoff matrix for Bernie and Leona. b. What is the dominant strategy for Bernie and for Leona? Why? c. Based on your response to the previous question, what prison sentence will each receive?arrow_forward
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