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 3MC
To determine
Nash equilibrium.
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Consider the following information for a simultaneous-move game: two discount stores (megastore and superstore) are interested in expanding their market share through advertising. The table below depicts the profits of both stores with and without advertising. Payoffs for Megastore are in bold.
A Nash Equilibrium
Superstore
Advertise
Don't Advertise
Megastore
Advertise
$95, $80
$305, $55
Don't Advertise
$65, $285
$165, $115
A Nash equilibrium
for the Megastore to advertise and for the Superstore to advertise
for the Megastore to advertise and for the Superstore not to advertise
for the Megastore to not advertise and for the Superstore to advertise
for the Megastore to not advertise and for the Superstore to not advertise
Consider the following game in normal form.
Not cooperate
Cooperate
Not cooperate
20,20
50,0
Cooperate
0,50
40,40
What is Nash equilibrium? Is it efficient? Why?
What needs to be complied with so that the players would like to cooperate? What happens when one of the players does not cooperate? Why? Define trigger strategy.
Calculate the discount factor (δ) that would make both players decide to cooperate.
Chapter 15 Solutions
Managerial Economics: A Problem Solving Approach
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- Consider the following information for a simultaneous-move game: two discount stores (megastore and superstore) are interested in expanding their market share through advertising. The table below depicts the profits of both stores with and without advertising. Payoffs for Megastore are in bold A Nash Equilibrium Superstore Advertise Don't Advertise Megastore Advertise $95, $80 $305, $55 Don't Advertise $65, $285 $165, $115 If firms could collude, then it would be optimal. for the Megastore to advertise and for the Superstore to advertise for the Megastore to advertise and for the Superstore not to advertise for the Megastore to not advertise and for the Superstore to advertise for the Megastore to not advertise and for the Superstore to not advertisearrow_forwardFind all of the Nash equilibrium of the following three player game. Player 1 chooses rows (a,b). Player 2 chooses columns (c,d). Player 3 chooses matrices (x.y). Player 3 receives the third listed payoff for cach outcome. 5,5,5 4,4,0 8,8,3 7,7,3 1,3,1 4,2,0 3,2,4 3,1,0 a by A) (b,d.x) and (a,d.y) B) (b.cy) OC) (b,d,x) D) (a,d,x) and (b,c.y) E) (b,c,x) OF) (a,d.x)arrow_forwardQUESTION 15 Consider the following information for a simultaneous move game: Two discount stores (megastore and superstore) are interested in expanding their market share through advertising. The table below depicts the strategic outcomes (profits) of both stores with and without advertising. Megastore Superstore Advertise Advertise $95, $80 Don't Advertise $65, $285 b. Megastore $95 and Superstore $80 c. Megastore $65 and Superstore $285 d. Megastore $165 and Superstore $115 Don't Advertise $305, $55 $165, $115 If the stores could co-operate, what is the new Nash equilibrium? a Megastore $305 and Superstore $55arrow_forward
- Two firms, Tim Horbucks and Startons, consider enter the market for take-out coffee, or not. The profit each firm can make (in dollars) is indicated in the table below, where the fixed cost of producing is F dollars. What is the largest value of F below which the game has a UNIQUE Nash equilibrium in pure strategies? Startons Enter Not Enter Enter 400 - F, 400 - F 600 - F,0 Tim Horbucks Not Enter 0, 600 - F 0 ,0 Enter a positive number below, in dollars.arrow_forwardPlease please give answer completearrow_forwardConsider the payoff matrix below which shows the cleaning strategies of two roommates, Patrick and Cameron.arrow_forward
- Consider the following game: PLAYER 2 Left Middle Right Up 0,0 2,5 5.4 PLAYER 1 Middle 1,2 7,3 4,3 Down 5,5 3, 1 2, 1 Which of the following statements is true? There are two Nash equilibria, and they are both Pareto efficient. There is a unique Nash equilibrium. There are two Nash equilibria, and they are both Pareto inefficient. There are two Nash equilibria, but only one is Pareto efficient. None of these.arrow_forwardIn a game of chicken, two drivers are heading towards each other on a collision course. The first one to swerve is considered the "chicken" and loses. What is the Nash equilibrium in this game? a) Both drivers swerve b) Neither driver swerves c) One driver swerves while the other doesn't d) It depends on the specificarrow_forwardConsider the following game: Mercedes-Benz and Honda are the only two firms in the market for automobiles. Each firm has two strategies: produce high-grade vehicles or produce low-grade vehicles. The first entry in the bracket is the payoffs (in $billion) of Mercedes-Benz and the second entry is the payoffs of Honda. (see the image) What is the dominant strategy of Mercedes-Benz and Honda? Also, what is the Nash equilibrium of this game?arrow_forward
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