ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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- Sam and Sarah are thinking about getting married. However if either of them cheats on the other, they would get a payoff of 10, while the other person gets zero. If neither cheat, they stay with each other and get a payoff of 7 each and if both cheat, the relationship falls apart and each get a payoff of 1. What is the Nash equilibrium of this game? a. Cheat, Cheat b. Not cheat, Not cheat Sam cheats, Sarah doesn't Sarah cheats, Sam doesn'tarrow_forwardConsider a market with two firms, Hewlett-Packard (HP) and Dell, that sell printers. Both companies must choose whether to charge a high price ($500) or a low price ($350) for their printers. These price strategies with corresponding profits are depicted in the payoff matrix to the right. HP's profits are in red and Dell's are in blue. Suppose HP and Dell are initially at the game's Nash equilibrium. Then, HP and Dell advertise that they will match any lower price of their competitors. For example, if HP charges $350, then Dell will match that price and also charge $350. What effect will matching prices have on profits (relative to the Nash equilibrium without price matching)? (Enter either positive or negative numeric HP's profit will change by $ and Dell's profit will change by responses using integers.) Price = $500 Dell Price $350 HP Price = $500 Price = $350 $80 $100 $80 $15 $15 $50 $100 $50arrow_forward4.2. Game theory (Prisoner's dilemma). Often, many sectors in an economy have two main rivals, battling it out in the marketplace. There can be rivalry such as between Apple and Samsung in Phones and Laptops. Suppose Apple plans to cut its price. Samsung will likely follow suit to retain its market share. This may end up with low profits for both companies. A price drop by either company may thus be construed as defecting since it breaks an implicit agreement to keep prices high and maximize profits. Thus, if Apple drops its price but Samsung continues to keep prices high, Apple is defecting, while Samsung is cooperating (by sticking to the spirit of the implicit agreement). In this scenario, Apple may win market share and earn incremental profits by selling more. Assume that the incremental profits that accrue to Apple and Samsung are as follows: If both keep prices high (Cooperate), profits for each company increase by AED200 million (because of normal growth in demand). If one drops…arrow_forward
- Solve the following game: Push Not Push 4, 2 6, -1 Part a: Find the Nash equilibrium Not 2, 3 0, 0arrow_forwardConsider a beauty-contest game in which n players simultaneously pick a number between zero and 100 inclusive; the person whose number is closer to half of the average number wins a prize. What is the unique Nash equilibrium of this game? What number will a level-3 thinker pick?arrow_forwardConsider a game where player A moves first, choosing between Left and Right. Then, after observing player A’s choice, player B moves next choosing between Up and Down. Which of the following is true? This is a game where players A and B have the same number of strategies. Player A will get a higher payoff than player B as A moves first. This is game will only have one Nash equilibrium. This is a game of perfect information.arrow_forward
- So imagine you are playing this game as the second player and you are both given a 10 dollars and the dictator decides to offer you 25 cents and that she/he will keep $9.25. Your only choice is to accept the 25 cents or reject the offer and get no money at all. What would you do? What would be considered ‘rational’ from the perspective of utility maximization? What would you do if this is a continued game and the same scenario will happen multiple times not just once? Do you think others will react the same way you would?arrow_forwardLike a good economist, you calculated the cost of getting your college degree, including the opportunity cost. Suppose that at your university, you will pay $15,000 each year for tuition, $3,000 each year for textbooks, and $8,000 per year for room and board. Before you left for college, your boss at your high-school job offered you a job paying $15,000 per year.Assume that if you decided not to go to college, your parents would let you live at home for free.Including the opportunity cost, what is the cost of attending four years of college? $arrow_forwardLet's think about a traditional game theory principal agent game. In this game we have two players, Lauren and Jason Lauren will choose to invest $500 dollars with Jason If she doesn't invest the money, she keeps the $500 and Jason gets nothing If she does invest the money, then Jason has a choice-he can cooperate by investing Lauren's money and then splitting the profit of another $500. This would give Lauren $750 (her original $500 investment plus $250 of profit) and would give Jason $250. Jason's other choice is to appropriate, or to steal Lauren's money and not invest it. If he does this, Lauren ends up with nothing and Jason has the entire $500. The following diagram outlines this game. Principal Agent Game Jason (750.250) Invest appropriate 10. 500) doninve What will happen in this game? Lauren will not invest Lauren will invest and Jason will cooperate Lauren will invest and Jason will appropriate Next pagearrow_forward
- Consider the following sequential-move game: This game involves three players, each making sequential decisions. The game proceeds as follows: • Player 1 initiates the game by choosing between two actions: Left and Right. • Depending on Player 1's choice, Player 2 then decides, choosing between two actions, left (I) and right (`r`). • Finally, Player 3 makes the last move in the sequence, choosing between actions `a` and `b`. The payoffs are determined by the sequence of choices made by all three players. Each payoff is represented by the triplet (x,y,z), where x, y, and z denote the payoffs for Player 1, Player 2, and Player 3, respectively. For example, if Player 1 chooses 'Left', Player 2 chooses 'I', and Player 3 chooses `a` the resulting payoff would be (3,1,2). This indicates that Player 1 receives a payoff of $3, Player 2 receives a payoff of $1, and Player 3 receives a payoff of $2 for this particular sequence of actions. Left Player 2 Player 1 Right Player 2 Player 3 Player 3…arrow_forwardConsider the following game where two players have to decide if they want to buy a movie ticket or a baseball ticket. They have the highest payoffs when they both buy tickets to the same activity, but must decide simultaneously what to buy without knowing what the other person will do. a. Does either player have a dominant strategy? b. How many equilibria does this game have? c. Is this an example of a prisoner’s dilemma? Explain. d. What will be the outcome if your friend buys their ticket first and you can observe their choice?arrow_forwardThe “research and development” game is best analyzed as a simultaneous move game, because the parties lack information about each other’s investment decisions. Which game (in the attachment) describes the “research and development game” properly? Remember that investment costs $6, and that this should be reflected, whenever appropriate, in the correct game matrix. (Note: Firm A chooses the row and Firm B chooses the column.)arrow_forward
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