5 (Table) Assume that firm A and firm B are oligopolies and both charge $20 for a product and face roughly the same costs. Firm A is considering a price decrease to $15. Profits for each firm are given in the payoff matrix (A's profits listed first, B's profits listed second) shown in the table. How will firm B react? Firm B's Price $20 Firm B's Price $15 $60,000 $120,000 $80,000 $80,000 Firm A's Price $20 Firm A's Price $15 $100,000 $100,000 $120,000 $60,000 Firm B will lower its price to $15 and earn $80,000. Firm B will keep its price at $20 and earn $100,000. Firm B will keep its price at $20 and earn $60,000. Firm B will lower its price to $15 and earn $60,000. Panel Editor

5 (Table) Assume that firm A and firm B are oligopolies and both charge $20 for a product and face roughly the same costs. Firm A is considering a price decrease to $15. Profits for each firm are given in the payoff matrix (A's profits listed first, B's profits listed second) shown in the table. How will firm B react? Firm B's Price $20 Firm B's Price $15 $60,000 $120,000 $80,000 $80,000 Firm A's Price $20 Firm A's Price $15 $100,000 $100,000 $120,000 $60,000 Firm B will lower its price to $15 and earn $80,000. Firm B will keep its price at $20 and earn $100,000. Firm B will keep its price at $20 and earn $60,000. Firm B will lower its price to $15 and earn $60,000. Panel Editor

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1 Consider two identical firms with a unit cost of production of $10 and a market demand of p= 60-y. (a) What is firm 1’s optimal output level as a function of firm 2’s output? (b) What is firm 2’s optimal output level as a function of firm 1’s output? (c) What is the Cournot equilibrium output level for these firms? (d) What is the Cournot equilibrium price level? Show your work step by step.
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6. Using a payoff matrix to determine the equilibrium outcome Suppose that Zipride and Citron are the only two firms in a hypothetical market that produce and sell electric scooters. 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 scooters. Zipride Pricing price. High Low For example, the lower-left cell shows that if Zipride prices low and Citron prices high, Zipride will earn a profit of $13 million, and Citron will earn a profit of $3 million. Assume this is a simultaneous game and that Zipride and Citron are both profit-maximizing firms. Citron Pricing High 9,9 13, 3 If Zipride prices high, Citron will make more profit if it chooses a Low If the firms do not lude, 3, 13 6, 6 If Citron prices high, Zipride will make more profit if it chooses a price. Considering all of the information given, pricing low True False Both Zipride and Citron will choose a low price. strategies…
1. Consider the following game matrix. Player A Answer: Top Bottom Left a, b e, f Player B Right c, d g, h (a) If top and left are strictly dominant strategies, then what do we know the relationship of the parameters? (b) If (top, left) is a Nash equilibrium, then what do we know the relationship of the parameters? Answer: (c) If top and left are strictly dominant strategies, will (top, left) be a Nash equilibrium? Why? Answer: (d) If (top, left) is a Nash equilibrium, must the strategies be strictly dominant strategies? Why? Answer:
7) What is the significance of the mutual interdependence among the firms in an oligopolistic market?
Assume that the market for oil is made up of two firms: Exxon Mobil and Chevron. Also assume that New England has dozens of breweries and each of these make beers with different tastes, colors, and aromas. Which of the following statements is true? The market structure for oil is an oligopoly, and the one for beer is monopolistic competition. The market structure for oil is monopolistic competition, and the one for beer is an oligopoly. The market structure for both oil and beer is an oligopoly. The market structure for both oil and beer is monopolistic competition.
D2) Explain this concept and give one practical example(oligopoly)
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(Figure: Payoff Matrix for the United States and Canada) Use Figure: Payoff Matrix for the United States and Canada. Suppose that the United States and Canada both produce quinoa, and each country can earn more profit it output is limited and the price of quinca is high. The dominant strategy for the United States is: Canada US Low output High output Low output EU profit $10 million US profit $10 million EU profit $4 million US profit $12 million High output EU profit $12 million US profit $4 million Olow output O The United States does not have a dominant strategy O adopt a fit for tal strategy O high output EU profit $7 million US profit $7 million
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