Country A Ch $4,50 $1,$1 a What is Country A's best response to Country B's choice to limit supply (collude)? b. What is the (Pure Strategy) Nash equilibrium of this game it played only one period (be specific as to why)? .c What famous form does this game take? c is there a Pareto efficient outcome of the game? d. If this game is commonly expected to last for exactly 3 periods, will the two firms be able to sustain collusion? Why or why not? e If this game were commonly expected to last indefinitely, would the two firms be able to sustain collusion? Why or why not?
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- Suppose OPEC has only two producers, Saudi Arabia and Nigeria, Saudi Arabia has far more oil reserves and is the lower-cost producer compared to Nigeria. The payoff matrix in the table to the right shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota Which of the following statements is true? OA. The Nash equilibrium is a cooperative equilibrium. OB. The Nash equilibrium is a noncooperative, dominant strategy equilibrium OC. The Nash equilibrium is a collusive equilibrium. D. There is no Nash equilibrium in this game because each party. pursues its dominant strategy. Low output Nigeria High output Low output Nigeria earns $20 million Saudi Arabia Nigeria earns $30 million Saudi Arabia earns $100 million Saudi Arabia earns $80 million High output Nigeria earns $12 million Saudi Arabia earns $75 million Nigeria earns $20 million Saudi Arabia…Consider a town in which only two residents, Alex and Becky, own wells that produce water safe for drinking. Alex and Becky can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water. Price Quantity Demanded Total Revenue (Dollars per gallon) (Gallons of water) (Dollars) 3.60 3.30 35 $115.50 3.00 70 $210.00 2.70 105 $283.50 2.40 140 $336.00 2.10 175 $367.50 1.80 210 $378.00 1.50 245 $367.50 1.20 280 $336.00 0.90 315 $283.50 0.60 350 $210.00 0.30 385 $115.50 420 Suppose Alex and Becky form a cartel and behave as a monopolist. The profit-maximizing price is $ per gallon, and the total output is gallons. As part of their cartel agreement, Alex and Becky agree to split production equally.. Therefore, Alex's profit is $ and Becky's profit is $ Suppose that Alex and Becky have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopoly quantity.…. When Chinese automakers began exporting cars, rather thanfocusing on developed nations in the West, they shippedautos to emerging markets in countries such as Algeria, Russia,Chile, and South Africa. In these markets, even used vehiclesfrom multinational manufacturers are relatively scarce—andrelatively expensive. The Chinese automakers, who prioritizelow cost rather than design or even safety, applied a penetration-pricing strategy. A woman in Santiago, Chile, who boughta new Chery S21 explained, “The price factor is fairly decisive.I paid $5,500 new and full. Toyota with similar features costsaround $12,000.” Why do you think Chinese automakerschose that pricing strategy? Do you think it was successful?As Chinese regulators pressure these manufacturers to maketheir cars safer, do you think they will be able to keep theirprices low compared with those of the international automakers? Why or why not?26
- 1. How would you characterize the strategy for competing internationally that Ford was pursuing prior to the arrival of Alan Mulally in 2006? What were the benefits of this strategy? What were the costs? Why was Ford pursuing this strategy? 2. What strategy is Mulally trying to get Ford to pursue with his One Ford initiative? What are the benefits of this strategy? Can you see any drawbacks? 3. Does the One Ford initiative imply that Ford will now ignore national and regional differences in demand?Consider trade relations between the United States and Mexico. Assume that the leaders of the two countries believe the payoffs to alternative trade policies are as follows a. What is the dominant strategy for the United States? For Mexico? Explain. b. Define Nash equilibrium. What is the Nash equilibrium for trade policy? c. In 1993, the U.S.Congress ratified the North American Free Trade Agreement, in which the United States and Mexico agreed to reduce trade barriers simultaneously. Do the perceived payoffs shown here justify this approach to trade policy? Explain. d. Based on your understanding of the gains from trade (discussed in Chapters 3 and 9), do you think that these payoffs actually reflect a nation's welfare under the four possible outcomes?What is the payoff for each firm in this simultaneous game? a. Both firms will earn 0 b. Firm A will earn 50 and firm B will earn -10 c. Firm A will earn -10 and firm B will earn 50 O d. Both firms will earn 25 Refer to the following normal form game of price competition for questions 85 - 88. Firm A Low Price High Price Firm B Low Price 0,0 -10, 50 High Price 50, -10 25, 25
- Enter The payoffs are represented in the game tree illustrated in the figure to the right What is the subgame perfect Nash equilibrium? -(450,125 Rival Small O A. The game does not have a Nash equililbrium. O B. The Nash equilibrium is for the incumbent produce the large quantity and for the rival to only enter if the (900,0) Don't enter incumbent produces the small quantity. Incumbent Enter OC. The Nash equilibrium is for the incumbent to produce the large quantity and for the rival to not enter regardless of the incumbent's quantity. (400, -2 Large Rival O D. The Nash equilibrium is for the incumbent produce the small quantity and for the rival to only enter if the incumbent produces the small quantity. (800,0) Don't enter O E. The Nash equilibrium is for the incumbent to produce the large quantity and for the rival to enter regardless of the incumbent's quantity.· It was discovered that two domestic manufacturing companies were fixing prices. If each company is silent, there is no penalty, but production and business are disrupted due to continuous investigation by the Fair Trade Commission. The penalty for revealing the estimated loss due to the investigation and collusion is as follows. - Question: Where is the Nash Equilibriur.? Firm 2 Silence Disclosure Silence -100, -100 -680, O Firm 1 Disclosure 0, -680 -470, -470 fine (a hundred million won)Suppose O2 and Vodafone are the only two telecommunicationscompanies in UK. Both companies are considering whether ornot to stop offering unlimited data plans. Each company has twostrategies: stop or don’t stop. The first entry in the brackets is the payoffsof O2 and the second entry is the payoffs of Vodafone, both in $million.What will be the dominant strategies of O2 and Vodafone and what willbe the Nash equilibrium? Explain your answers.
- how conflicting affecting cartels and like cartels like opec fail to reachto consensus on price and quantity?1. A large share of the world supply of diamonds comes from Russia and South Africa. Suppose that the mar- ginal cost of mining diamonds is constant at $1,000 per diamond and the demand for diamonds is described by the following schedule: Price $8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Quantity 5,000 diamonds 6,000 7,000 8,000 9,000 10,000 11,000 12,000 a. If there were many suppliers of diamonds, what would be the price and quantity? b. If there were only one supplier of diamonds, what would be the price and quantity? c. If Russia and South Africa formed a cartel, what would be the price and quantity? If the countries split the market evenly, what would be South Africa's production and profit? What would hap- pen to South Africa's profit if it increased its pro- duction by 1,000 while Russia stuck to the cartel agreement? d. Use your answers to part (c) to explain why cartel agreements are often not successful.Consider the following price game: Firm 1 Firm 2 High Low High 20, 20 12, 24 Low 24, 12 14, 14 Remark: In simultaneous move games (games with rows and columns) theconvention is to write the row player’s payoff first and the column player’spayoff second. (a) What is the Nash equilibrium of this game? Recall that for each playeryou should find the best response to each of the opponents’ strategies andunderline the associated payoff. Then look for a cell where both strategiesare best responses to each other. This is a Nash equilibrium. (b) Does either firm have a dominate strategy (a strategy that is always abest response)?