Question

1) Consider the following game in which two firms decide how much of a homogeneous good to produce. The annual profit payoffs for each firm are stated in the cell of the game matrix, and Firm A's payoffs appear first in the payoff pairs: Firm B - low output Firm B - high output Firm A - low output 300, 250 200, 100 Firm A - high output 200, 75 75, 100

a. What are the dominant strategies in this game? Do both players have them?

b. What is the Nash Equilibrium for this game?

Answer #1

The payoff matrix:

Firm B | |||

Firm A | Low | High | |

Low | 300, 250 | 200, 100 | |

High | 200, 75 | 75, 100 |

a. Dominant strategy of this game is Low output. Only firm A has it. Firm B has no dominant strategy.

b. Nash equilibrium is (Low, Low) with payoff (300, 250).

reason: Firm A has a dominant strategy. It will always opt Low no matter what Firm B chooses. So, in response, Firm B will choose Low too, as its payoff for Low (250) is higher than for High (100).

Hence (Low, Low) is the Nash equilibrium.

Q3) The following matrix shows strategies and payoffs for two
firms that must decide how to price.
(5 Points)
Firm 1
Firm 2
Price High
Price Low
Price High
500, 500
-100, 400
Price Low
400, -100
250, 250
What is the Nash Equilibrium of this game?
Q4) Use the marginal of product of labor to illustrate
graphically the impact of an increase in immigration on employment
and wages. (10 Points)

PAYOFF MATRIX FOR A PRICING GAME
FIRM B
Low Price
High Price
FIRM A
Low Price
(50,000; 50,000)
(80,000; 30,000)
High Price
(30,000; 80,000)
(20,000; 20,000)
From the above payoff matrix where the
payoffs are the profits of the two firms, determine whether:
Firm A has a dominant strategy. If so, what is
it?
Firm B has a dominant strategy. If so, what is it?
The optimal strategy for each firm if there is any.
Will a Nash equilibrium exist...

Two firms play the game below. Each must choose strategy 1 or 2.
They choose their strategies simultaneously and without cooperating
with each other. Firm A?'s payoffs
are on the left side of each? cell, and
Firm B?'s payoffs are on the
right.
Firm A
Firm B
Strategy 1
Strategy 2
Strategy 1
10, 16
8, 12
Strategy 2
13, 12
17, 10
Determine the dominant strategy for each firm.
1) For Firm A :
A. Strategy 1 is a...

Consider the following simultaneous-move, one-shot game facing
two firms (Firm A and Firm B), with the payoffs given in Table I.
Assume the firms are not able to coordinate or communicate. Firm A
and B each has three strategic options.
Table I
Firm B
Firm A
Strategy
Low
average
high
Small
100, 125
300, 200
200, 190
Medium
250, 0
470, 340
480, 300
Large
300, -100
450, 450
475, 360
(a). For each of the firms, identify the dominant...

Consider the following market entry game. There are two firms :
firm 1 is an incumbent monopolist on a given market. Firm 2 wishes
to enter the market. In the first stage, firm 2 decides whether or
not to enter the market. If firm 2 stays out of the market, firm 1
enjoys a monopoly profit of 2 and firm 2 earns 0 profit. If firm 2
decides to enter the market, then firm 1 has two strtegies : either...

Answer the next question based on the following payoff matrix
for two oligopolistic firms in which the numbers indicate the
profit in millions of dollars for each firm.
Firm A
High Price
Low Price
Firm B
High price
A = $250
A = $325
B = $250
B = $200
Low price
A = $200
A = $175
B = $325
B = $175
If the two firms collude to maximize joint profits, there will
be
Multiple Choice
an incentive...

he figure below shows the payoff matrix for two firms, Firm 1
and Firm 2, selecting an advertising budget. For
each cell, the first coordinate represents Firm 1's payoff and the
second coordinate represents Firm 2's payoff. The firms
must choose between a high, medium, or low budget.
Payoff Matrix
Firm 1
High
Medium
Low
Firm 2
High
(0,0)
(5,5)
(15,10)
Medium
(5,5)
(10,10)
(5,15)
Low
(10,15)
(15,5)
(20,20)
Use the figure to answer the following questions. Note:
you only need...

Which of the following is true for a Nash equilibrium of a
two-player game?
a) The joint payoffs of the two players are highest compared to
other strategy pairs.
b) It is a combination of strategies that are best responses to
each other.*?
c) Every two-player game has a unique Nash equilibrium.
d) None of the above is correct.

Two firms operate in the market for a certain hair care product.
If they both have a large advertising budget, they each earn profit
of $600. If they both have a low advertising budget, they each earn
profit of $400. If one firm has a large advertising budget and the
other low, then the high advertising firm earns profit of $700
while the low advertising firm earns profit of $200.
Write out the payoff matrix for this game.
Does either...

Consider the following simultaneous-move, one-shot game facing
two firms (Firm I and Firm II), with the payoffs given in Table1.
The firms are not able to coordinate or communicate. Each firm has
three strategic options (options A, B and C for Firm I and D, E and
F for Firm II).
Table 1
Firm II
Firm I
Strategy
D
E
F
A
100, 125
300, 250
200, 260
B
250, 0
350, 300
340, 400
C
0, -100
400, 300...

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