ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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A secluded off-ramp on a highway through the Prairie of Prax has two gas stations, the only gas
stations for miles, Northgoings and Southgoings. Suppose Northgoings and Southgoings must
simultaneously display their prices, choosing between a high price and low price gas. The payoff
matrix for this game, showing potential daily profit, is displayed below. Assume both stations know
all of the information in the matrix, and that this is a one-time payoff.
Northgoings Decisions
High Price
Low Price
N: $500
N: $800
High Price
S: $400
S: $50
Southgoings Decisions
N: $100
N: $250
Low Price
S: $700
S: $200
(a) According to our model of game theory, Northgoings has a dominant strategy to
[Select]
(b) According to our model of game theory, Southlgoings has a dominant strategy to
[ Select]
V
(c) According to our model of game theory, the competitive outcome, or Nash Equilibrium,
Northgoings will earn [ Select]
and Southgoings will earn
[ Select]
(d) On the other hand, if these two companies worked together and colluded, Northgoings will earn
[Select]
and Southgoings will earn [Select]
(e) According to our model with profit-maximizing oligopolists in a one-time game such as this, why
do we think these companies are more likely to end with the outcome in (c) rather than in (d)?
[Select]
S
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Transcribed Image Text:A secluded off-ramp on a highway through the Prairie of Prax has two gas stations, the only gas stations for miles, Northgoings and Southgoings. Suppose Northgoings and Southgoings must simultaneously display their prices, choosing between a high price and low price gas. The payoff matrix for this game, showing potential daily profit, is displayed below. Assume both stations know all of the information in the matrix, and that this is a one-time payoff. Northgoings Decisions High Price Low Price N: $500 N: $800 High Price S: $400 S: $50 Southgoings Decisions N: $100 N: $250 Low Price S: $700 S: $200 (a) According to our model of game theory, Northgoings has a dominant strategy to [Select] (b) According to our model of game theory, Southlgoings has a dominant strategy to [ Select] V (c) According to our model of game theory, the competitive outcome, or Nash Equilibrium, Northgoings will earn [ Select] and Southgoings will earn [ Select] (d) On the other hand, if these two companies worked together and colluded, Northgoings will earn [Select] and Southgoings will earn [Select] (e) According to our model with profit-maximizing oligopolists in a one-time game such as this, why do we think these companies are more likely to end with the outcome in (c) rather than in (d)? [Select] S
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