Microeconomics: Principles, Problems, & Policies (McGraw-Hill Series in Economics)
20th Edition
ISBN: 9780077660819
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 13.A, Problem 1ADQ
To determine
Zero-sum game and the positive-sum game.
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18. Answer the next question based on the payoff matrix for a two-firm oligopoly where the
numbers represent the firms' respective profits given each of their pricing strategies:
FIRM Y
O $ 800,000
O $1,000,000
O $1,450,000
Strategies:
High-price
If both firms collude to maximize joint profits,
O $1,250,000
FIRM X
High-price
X = $625,000
Y = $625,000
Low-price X = $275,000
Y = $725,000
Low Price
X = $725,000
Y = $275,000
X = $400,000
Y = $400,000
tal profits for the two firms will be:
Suppose that Firm A and Firm B are independently deciding whether to sell at a low price or a high price. The payoff matrix below
shows the profits per year for each company resulting from the two price options.
Firm B High Price
Firm B Low Price
$5 million
$2 million
$3 million
$1 million
$4 million
$5 million
$2 million
$3 million
a. Does Firm A have a dominant strategy?
O The dominant strategy for Firm A is a low price.
O The dominant strategy for Firm A is a high price.
O No, there is no dominant strategy for Firm A.
b. Does Firm B have a dominant strategy?
O The dominant strategy for Firm B is a high price.
The dominant strategy for Firm B is a low price.
O No, there is no dominant strategy for Firm B.
c. What are the Nash equilibria in this game?
Instructions: In order to receive full credit, you must make a selection for each option. For correct answer(s), click the box once to
place a check mark. For incorrect answer(s), click the option twice to empty the box.
2 Firm A charges…
4. The following payoff matrix shows the profit payoff to firms A and B from combinations of
price strategies HI and LO.
A
НІ
LOW
B
HI
(6, 6)
(16, -5)
LOW
(-7, 15)
(0, 0)
(a) In a one period game, what strategy would each firm follow, and why? Determine the
equilibrium on the one-period game.
(b) Now assume the game is infinite in length. Firm B goes HI in period 1 and continues
with HI so long as A does as well. Firm A is deciding between HI and LO. Determine
the
range of discount rates for which HI is the better choice for Firm A.
Chapter 13 Solutions
Microeconomics: Principles, Problems, & Policies (McGraw-Hill Series in Economics)
Ch. 13.1 - Prob. 1QQCh. 13.1 - Prob. 2QQCh. 13.1 - Prob. 3QQCh. 13.1 - Prob. 4QQCh. 13.4 - Prob. 1QQCh. 13.4 - The D2e segment of the demand curve D2eD1 in graph...Ch. 13.4 - Prob. 3QQCh. 13.4 - Prob. 4QQCh. 13.A - Prob. 1ADQCh. 13.A - Prob. 2ADQ
Ch. 13.A - Prob. 3ADQCh. 13.A - Prob. 4ADQCh. 13.A - Prob. 1ARQCh. 13.A - Prob. 2ARQCh. 13.A - Prob. 3ARQCh. 13.A - Prob. 1APCh. 13.A - Prob. 2APCh. 13 - Prob. 1DQCh. 13 - Prob. 2DQCh. 13 - Prob. 3DQCh. 13 - Prob. 4DQCh. 13 - Prob. 5DQCh. 13 - Prob. 6DQCh. 13 - Prob. 7DQCh. 13 - Prob. 8DQCh. 13 - Prob. 9DQCh. 13 - Prob. 10DQCh. 13 - Prob. 11DQCh. 13 - Prob. 12DQCh. 13 - Prob. 13DQCh. 13 - Prob. 1RQCh. 13 - Prob. 2RQCh. 13 - Prob. 3RQCh. 13 - Prob. 4RQCh. 13 - Prob. 5RQCh. 13 - Prob. 6RQCh. 13 - Prob. 7RQCh. 13 - Prob. 8RQCh. 13 - Prob. 1PCh. 13 - Prob. 2PCh. 13 - Prob. 3P
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- Suppose that Firm A and Firm B are independently deciding whether to sell at a low price or a high price. The payoff matrix below shows the profits per year for each company resulting from the two price options. Firm B High Price Firm B Low Price $5 million $2 million $3 million $1 million $4 million $5 million $2 million $3 million a. Does Firm A have a dominant strategy? O The dominant strategy for Firm A is a low price. O No, there is no dominant strategy for Firm A. O The dominant strategy for Firm A is a high price. b. Does Firm B have a dominant strategy? O The dominant strategy for Firm B is a low price. O The dominant strategy for Firm B is a high price. O No, there is no dominant strategy for Firm B. Firm A Low Price Firm A High Pricearrow_forward5. The following represents the payoffs in a one period game in prices HI and LO. A HI LOW B HI (100, 100) (200,0) LOW (0, 200) (50, 50) (a) If A and B were playing this game only once, what strategy should A choose, and why? (b) A and B are playing the same game an infinite number of times and each has a discount rate of 50% (.50). Firm B adopts a trigger strategy and selects HI in the first round. What would be A's present value of profits from cooperation (HI)? What would be its present value from cheating (LO)? Would A choose to cooperate or cheat?arrow_forwardTeam 2 plays A Team 2 plays B Team 1 plays A 0, 24 10, 10 Team 1 plays B 4, 4 24, 0 Consider the infinitely repeated version of the game above. Which of the following is the smallest discount factor such that the grim trigger strategy under which team 1 plays A and team 2 plays B until a team deviates, after which team 1 plays B forever and team 2 plays A forever is a Nash Equilibrium? O 1/2 O3/4 O 1/100arrow_forward
- Suppose O2 and Vodafone are the only two telecommunicationscompanies in UK. Both companies are considering whether ornot to stop offering unlimited data plans. Each company has twostrategies: stop or don’t stop. The first entry in the brackets is the payoffsof O2 and the second entry is the payoffs of Vodafone, both in $million.What will be the dominant strategies of O2 and Vodafone and what willbe the Nash equilibrium? Explain your answers.arrow_forward2. Consider the following game. Assume that this game is played simultaneously and without collusion.  The two companies are choosing between two strategies: go international or stay national. The outcomes of each strategy for each company are given the following payoff matrix:  a) Find Nash equilibrium in this game. Interpret the equilibrium you found. b) What is the Chipco's dominant strategy, if it has one? How shall Chipco's payoffs change for it to not have a dominant strategy anymore?arrow_forwardNewfoundland’s fishing industry has recently declined sharply due to overfish- ing, even though fishing companies were supposedly bound by a quota agree- ment. If all fishermen had abided by the agreement, yields could have been maintained at high levels. LO4 Model this situation as a prisoner’s dilemma in which the players are Company A and Company B and the strategies are to keep the quota and break the quota. Include appropriate payoffs in the matrix. Explain why overfishing is inevitable in the absence of effective enforcement of the quota agreement. Provide another environmental example of a prisoner’s dilemma. In many potential prisoner’s dilemmas, a way out of the dilemma for a would-be cooperator is to make reliable character judgments about the trustworthiness of potential partners. Explain why this solution is not avail- able in many situations involving degradation of the environment.arrow_forward
- Consider a new card game between 2 players: Michael (player 1) and Phyllis (player 2) Michael is dealt two cards : O7 and 8. Phyllis is also dealt two cards: 09 and 10. Now, each of the players will play 1 card both at the same time. The payoff of Michael is 8 points if he plays a card of opposite color (red/black) than Phyllis, and otherwise his payoff is 10 points. The payoff of Phyllis is 1 points if the difference of the already played card numbers is smaller than 4, otherwise her payoff is 5 points. 1. Find the action sets of each player and the action profile of the game. 2. Represent the game in the Normal form. 3. Find the Best Responses for Michael. 4. Find the Best Responses for Phyllis. 5. Find all the Nash Equilibriums of the game (if any).arrow_forwardNormal Form Game: The table below provides a normal form, 2 x 2 game. The players are Column and Row. Column can choose either LEFT or RIGHT, and Row can choose either UP or DOWN. Their payoffs for each combination of moves are provided in the four boxes. Column Row UP DOWN What is the dominant strategy Nash equilibrium in the game situation described in the table above? O A. Either LEFT or RIGHT, so long as Row plays UP B. Either UP or DOWN, so long as Column plays LEFT OC. There is no dominant strategy Nash Equilibrium -7 O D. There is only one dominant strategy, UP O E. Every outcome is a dominant strategy Nash Equilibrium LEFT 1 -1 -3 7 RIGHT -6 -10arrow_forwardSuppose that there are two firms producing a homogenous product and competing in Cournot fashion and let the market demand be given by Q = 240- Assume for simplicity that each firm operates with zero total cost. Find each firm's Cournot Nash equilibrium profit for each firm. $21600 O $19200 O $18000 O $16000arrow_forward
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