Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 17, Problem 9PA
Subpart (a):
To determine
The dominant strategy and Nash equilibrium.
Subpart (b):
To determine
The dominant strategy and Nash equilibrium.
Subpart (c):
To determine
The dominant strategy and Nash equilibrium.
Subpart (d):
To determine
The dominant strategy and Nash equilibrium.
Subpart (e):
To determine
The dominant strategy and Nash equilibrium.
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Little Kona is a small coffee company that is considering entering a market dominated by Big Brew. Each company’s profit depends on whether Little Kona enters and whether Big Brew sets a high price or a low price:a. Does either player in this game have a dominant strategy?b. Does your answer to part (a) help you figure out what the other player should do?c. What is the Nash equilibrium? Is there only one?d. Big Brew threatens Little Kona by saying, “If you enter, we’re going to set a low price, so you had better stay out.” Do you think Little Kona should believe the threat? Why or why not?c. If the two firms could collude and agree on how to split the total profits, what outcome would they pick?
9. Little Kona is a small coffee company that is consider-
ing entering a market dominated by Big Brew. Each
company's profit depends on whether Little Kona
enters and whether Big Brew sets a high price or a low
price:
Little
Kona
Enter
Don't
Enter
High Price
Kona makes
$2 million
Kona makes
zero
Big Brew
Brew makes
$3 million
Brew makes
$7 million
Kona loses
$1 million
Low Price
Kona makes
zero
Brew makes
$1 million
Brew makes
$2 million
Little Kona is a small coffee company that is considering entering a market dominated by Big Brew. Each company's profit depends on whether Little Kona enters and whether Big Brew sets a high price or a low price:
True or False: Only Little Kona has a dominant strategy in this game.
True or False
Which of the following outcomes represent a Nash equilibrium in this case? Check all that apply.
Big Brew maintains a high price and Little Kona enters.
a.Big Brew maintains a low price and Little Kona enters.
b.Big Brew maintains a high price and Little Kona does not enter.
c.Big Brew maintains a low price and Little Kona does not enter.
Big Brew threatens Little Kona by saying, “If you enter, we're going to set a low price, so you had better stay out.”
True or False: Little Kona should not believe the threat.
True or False
If the two firms could collude and agree on how to split the total profits, what outcome would they…
Chapter 17 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
Ch. 17.1 - Prob. 1QQCh. 17.2 - Prob. 2QQCh. 17.3 - Prob. 3QQCh. 17 - Prob. 1QRCh. 17 - Prob. 2QRCh. 17 - Prob. 3QRCh. 17 - Prob. 4QRCh. 17 - Prob. 5QRCh. 17 - Prob. 6QRCh. 17 - Prob. 7QR
Ch. 17 - Prob. 1QCMCCh. 17 - Prob. 2QCMCCh. 17 - Prob. 3QCMCCh. 17 - Prob. 4QCMCCh. 17 - Prob. 5QCMCCh. 17 - Prob. 6QCMCCh. 17 - Prob. 1PACh. 17 - Prob. 2PACh. 17 - Prob. 3PACh. 17 - Prob. 4PACh. 17 - Prob. 5PACh. 17 - Prob. 6PACh. 17 - A case study in the chapter describes a phone...Ch. 17 - Prob. 8PACh. 17 - Prob. 9PA
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