Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 10, Problem 9P
To determine
The dominant strategy for the firms in the duopoly market and establishing the equilibrium strategy combination and the Nash equilibrium for the market.
Concept Introduction:
Dominant Strategy- The strategy for a player for which he does better in terms of payoffs/profits irrespective of the strategy of the rival, is said to be his dominating strategy.
Nash Equilibrium- The strategy combination for the two players which is mutually agreed upon for higher returns such that no one player has an incentive to deviate from it unilaterally, is said to be a Nash Equilibrium.
| FORD SELLING PRICE → | $4,000 | $8,000 | $12,000 |
|---|---|---|---|
| CHEVROLET SELLING PRICE↓ | |||
| $4,000 | 8,8 | 12,6 | 14,2 |
| $8,000 | 6,12 | 10,10 | 12,6 |
| $12,000 | 2,14 | 6,12 | 7,7 |
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a. What price will Ford charge?
b. What price willI Chevrolet charge once Ford has set its
price?
c. What is Ford's profit after Chevrolet's response?
Suppose there are only two automobile companies, Ford and Chevrolet. Ford believes that Chevrolet will match any price it sets, but Chevrolet too is interested in maximizing profit. Use the following price and profit data to answer the following questions.
Ford's Chevrolet's Ford’s Chevrolet’s
Selling Selling Profits Profits
Price Price (millions) (millions)
$ 4,000 $ 4,000 $ 8 $ 8
4,000 8,000 12 6
4,000 12,000 14 2
8,000 4,000…
Economics: Industrial Economics
Question
Consider the following sequential game between firm 1 and firm 2:
First, firm 1 decides to either adopt an aggressive marketing strategy or not. Second, Firm 2 observes firm 1's decision and then also decides between its own aggressive strategy, a passive strategy or whether to leave the market altogether. The profits (in millions of dollars) of the firms are as follows: If both adopt an aggressive strategy, then firm 1's payoff is $14 and firm 2's is $1. If firm 1 adopts an aggressive strategy and firm 2 does not, then the payoff for firm 1 is $21 and for firm 2 is -$5. If firm 1 does nothing and firm 2 adopts an aggressive strategy, firm 1's payoff is $10 and firm 2's is $9. If both do nothing, then firm 1 makes $20 in profits and firm 2 makes $5. Finally, if firm 2 leaves the market altogether, it makes $0 and firm 1 makes $20 with an aggressive strategy and $24 without one.
1. Using the principle of backward induction, the most…
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