Peter and Paul own the two main firms in the peanut butter cup market and have decided to cooperate to increase their profits. The numbers represent the profits each firm will make, depending on how much both firms produce. Place the numbers into the grid to show the prisoner's dilemma the two firms will find themselves in as they try to cooperate. Peter's profits are shown in the blue triangles on the upper right and Paul's profits are shown in the green triangles on the lower left of each square in the grid. Peter's Peanut Butter Cups
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- Cooper and Rebecca run the only two lawncare companies in a small town. If they worked independently, they would each earn $3000. If they cooperated, they know they could raise the price of their lawncare services and service fewer lawns, but can each earn $4500. If one person raises prices and other does not, the person who raises prices will earn $1000 and the other will earn $6000. Draw a table representing their dilemmSuppose that Snapface and Instashot are the only two firms in a hypothetical market that produce and sell polaroid cameras. The following payoff matrix gives profit scenarios for each company (in millions of dollars), depending on whether it chooses to set a high or low price for cameras. Snapface Pricing High Low For example, the lower-left cell shows that if Snapface prices low and Instashot prices high, Snapface will earn a profit of $18 million, and Instashot will earn a profit of $2 million. Assume this is a simultaneous game and that Snapface and Instashot are both profit-maximizing firms. Instashot Pricing High Low 11, 11 2, 18 18, 2 10, 10 If Snapface prices high, Instashot will make more profit if it chooses a high price, and if Snapface prices low, Instashot will make more profit if it chooses a price. If Instashot prices high, Snapface will make more profit if it chooses a chooses a ▼ price. Considering all of the information given, pricing high If the firms do not collude,…Suppose that Flashfry and Warmbreeze are the only two firms in a hypothetical market that produce and sell air fryers. The following payoff matrix gives profit scenarios for each company (in millions of dollars), depending on whether it chooses to set a high or low price for fryers. Warmbreeze Pricing High Low Flashfry Pricing High 11, 11 2, 15 Low 15, 2 8, 8 For example, the lower-left cell shows that if Flashfry prices low and Warmbreeze prices high, Flashfry will earn a profit of $15 million, and Warmbreeze will earn a profit of $2 million. Assume this is a simultaneous game and that Flashfry and Warmbreeze are both profit-maximizing firms. If Flashfry prices high, Warmbreeze will make more profit if it chooses a price, and if Flashfry prices low, Warmbreeze will make more profit if it chooses a price. If Warmbreeze prices high, Flashfry will make more profit if it chooses a price, and if Warmbreeze prices low, Flashfry will make more profit if…
- Suppose that Flashfry and Warmbreeze are the only two firms in a hypothetical market that produce and sell air fryers. The following payoff matrix gives profit scenarios for each company (in millions of dollars), depending on whether it chooses to set a high or low price for fryers. Flashfry Pricing High Low For example, the lower-left cell shows that if Flashfry prices low and Warmbreeze prices high, Flashfry will earn a profit of $15 million, and Warmbreeze will earn a profit of $2 million. Assume this is a simultaneous game and that Flashfry and Warmbreeze are both profit-maximizing firms. Warmbreeze Pricing High Low 9,9 2,15 15, 2 8,8 If Flashfry prices high, Warmbreeze will make more profit if it chooses a chooses a price. If Warmbreeze prices high, Flashfry will make more profit if it chooses a chooses a price. Considering all of the information given, pricing low True O False price, and if Flashfry prices low, Warmbreeze will make more profit if it price, and if Warmbreeze…American Airlines and Braniff Airways are the two airlines operating flights from your region. Suppose that each company can charge either a high price for tickets or a low price. First, American Airlines will choose the price level. Following this, Braniff Airways will observe its competitor’s decision and choose the price level for its tickets. If both of the companies choose High, they earn $25,000 each. If they both choose Low, they earn $18,000 each. If the companies choose different levels of prices, the one choosing the high price will earn $15,000 and the one choosing Low will earn $30,000. a) Draw the game three. b) Solve the game by using backwards induction. c) If Braniff Airlines makes a promise to choose High if American Airlines chooses High, should American Airlines trust this promise? Explain.Consider an example of the prisoner's dilemma where 2 firms are making sealed bids on a highway-construction contract and each firm is allowed to bid either $120 million or $130 million. If both firms bid the same price, the job is shared equally and each firm earns half the value of its bid. Otherwise the lowest bidder wins the contract and receives the full value of its bid (and the other bidder earns zero). The non-cooperative outcome in this situation is O A. both firms bid $130 million. B. one firm bids $120 million, the other firm bids $130 million. C. both firms bid $60 million. D. both firms bid $120 million. O E. both firms bid $65 million. OO
- With Cournot competition, oligopoly firms decide on the quantity to produce. There is an equilibrium, where each firm chooses its production that is a best-response to the other firms' production levels. The equilibrium quantity and price is in between the competitive and monopoly market outcomes. To answer this question, you will want to use an appropriate graph on a piece of scratch paper. Otherwise, you are just guessing. Suppose that Coke and Pepsi are the only two firms in the cola market. There is Cournot competition between the two firms. The marginal cost of making a bottle of cola is constant at $2/bottle. Now suppose that the marginal cost of making a bottle of cola increases to $4/bottle. In the new Cournot equilibrium, the quantity sold will be greater for both firms. less for both firms. the same for both firms. unknown, since there is not enough information to answer.The prisoner's dilemma shown displays the payoffs associated with two firms: Firm A and Firm B. These firms are in an oligopoly and they can choose to either collude or compete. FIRM B Collude Produce 20m Compete Produce 50m Collude Produce 30m B: $300m profits A: $200m profits Given the payoffs in this matrix, Firm A: B: $400m profits FIRM A A: $50m profits 1. does not have a dominant stratgegy 2. has a dominant strategy to compete 3. has a dominant strategy to collude 4. none of these are true Compete Produce 35m A: $300m profits B: $170m profits A: $100m profits B: $200m profitsConsider an example of the prisoner's dilemma where 2 firms are making sealed bids on a contract and each firm is allowed to bid either $100 or $180. If both firms bid the same price, the job is shared equally and each firm earns half the value of its bid. Otherwise the lowest bidder wins the contract and receives the full value of its bid (and the other bidder earns zero). The cooperative outcome in this situation is Select one: A. one firm bids $100, the other firm bids $180. B. both firms bid $90. C. both firms bid $100. * D. both firms bid $50. E. both firms bid $180.
- Suppose Andrew and Beth are playing a game in which both must simultaneously choose the action Left or Right. The payoff matrix that follows shows the payoff each person will earn as a function of both of their choices. For example, the lower-right cell shows that if Andrew chooses Right and Beth chooses Right, Andrew will receive a payoff of 5 and Beth will receive a payoff of 5. Beth Left Right 6, 6 Right 4, 3 Left 6, 3 Andrew 5, 5 The only dominant strategy in this game is for to choose The outcome reflecting the unique Nash equilibrium in this game is as follows: Andrew chooses and Beth choosesConsider a small town that has two grocery stores from which residents can choose to buy a gallon of milk. The store owners each must make a decision to set a high milk price or a low milk price. The payoff table, showing profit per week, is provided below. The profit in each cell is shown as (Store 1, Store 2). From the table below, if grocery store 2 sets a high price, what price should grocery store 1 set? And what will grocery store 1's payoff equal? Store 1 O Low price, $800 O High price, $650 O Low price, $100 O High price, $800 Low Price High Price Low Price (500, 500) (100, 800) Store 2 High Price (800, 100) (650, 650)Exercise 7: The facility location game. Our example is a game in which two firms compete through their choice of locations. Suppose that two firms A and B are each planning to open a store in one of six towns located along six consecutive exits on a highway. We can represent the arrangement of these towns using a six-node graph as in Figure 1 Now, based on leasing agreements, Firm 1 has the option of opening its store in any of towns 1, 3, or 5, while Firm 2 has the option of opening its store in any of towns 2, 4, or 6. These decisions will be executed simultaneously. Once the two stores are opened, customers from the towns will go to the store that is closer to them. So for example, if Firm A open its store in town 3 and Firm B opens its store in town 2, then the store in town 2 will attract customers from 1 and 2, while the store in town 3 will attract customers from 3, 4, 5, and 6. If we assume that the towns contain an equal number of customers, and that payoffs are directly…