2. Using a payoff matrix to determine the equilibrium outcome 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 Warmbreeze Pricing High Low 11, 11 3,15 15,3 9.9 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 $3 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 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 high If the firms do not collude, what strategies will they end up choosing? price, and if Flashfry prices low, Warmbreeze will make more profit if a dominant strategy for both Flashfry and Warmbreeze. price, and if Warmbreeze prices low, Flashfry will make more profit if O Both Flashfry and Warmbreeze will choose a high price. Both Flashfry and Warmbreeze will choose a low price. Flashfry will choose a low price, and Warmbreeze will choose a high price. Flashfry will choose a high price, and Warmbreeze will choose a low price. True or False: The game between Flashfry and Warmbreeze is an example of the prisoners' dilemma.
2. Using a payoff matrix to determine the equilibrium outcome 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 Warmbreeze Pricing High Low 11, 11 3,15 15,3 9.9 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 $3 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 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 high If the firms do not collude, what strategies will they end up choosing? price, and if Flashfry prices low, Warmbreeze will make more profit if a dominant strategy for both Flashfry and Warmbreeze. price, and if Warmbreeze prices low, Flashfry will make more profit if O Both Flashfry and Warmbreeze will choose a high price. Both Flashfry and Warmbreeze will choose a low price. Flashfry will choose a low price, and Warmbreeze will choose a high price. Flashfry will choose a high price, and Warmbreeze will choose a low price. True or False: The game between Flashfry and Warmbreeze is an example of the prisoners' dilemma.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:2. Using a payoff matrix to determine the equilibrium outcome
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 $3 million. Assume this is a simultaneous game and that Flashfry and Warmbreeze are both profit-maximizing firms.
Warmbreeze Pricing
High
Low
11, 11
3,15
15,3
9,9
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 high
If the firms do not collude, what strategies will they end up choosing?
O True
False
price, and if Flashfry prices low, Warmbreeze will make more profit if it
✓price, and if Warmbreeze prices low, Flashfry will make more profit if it
a dominant strategy for both Flashfry and Warmbreeze.
O Flashfry will choose a low price, and Warmbreeze will choose a high price.
O Flashfry will choose a high price, and Warmbreeze will choose a low price.
O Both Flashfry and Warmbreeze will choose a high price.
O Both Flashfry and Warmbreeze will choose a low price.
True or False: The game between Flashfry and Warmbreeze is an example of the prisoners' dilemma.
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