Both firms offer free shuttle service: Profit for each firm is 5,000. Neither firm offers free shuttle service: Profit for each firm is 6,500. Firm A offers free shuttle service; Firm B does not. Profit for Firm A is 8,500; profit for Firm B is 3,500. Firm B offers free shuttle service; Firm A does not. Profit for Firm B is 8,500; profit for Firm A is 3,500. Which statement is true about this competitive scenario? At the Nash equilibrium outcome, industry profit will be maximized. O If you are convinced that your competitor is NOT going to offer the free shuttle service, then you shouldn't offer it either. O For both firms, the dominant strategy is NOT to offer free shuttle service. The game theory model would predict that the industry profit will be the lowest possible number of all four scenarios.

Both firms offer free shuttle service: Profit for each firm is 5,000. Neither firm offers free shuttle service: Profit for each firm is 6,500. Firm A offers free shuttle service; Firm B does not. Profit for Firm A is 8,500; profit for Firm B is 3,500. Firm B offers free shuttle service; Firm A does not. Profit for Firm B is 8,500; profit for Firm A is 3,500. Which statement is true about this competitive scenario? At the Nash equilibrium outcome, industry profit will be maximized. O If you are convinced that your competitor is NOT going to offer the free shuttle service, then you shouldn't offer it either. O For both firms, the dominant strategy is NOT to offer free shuttle service. The game theory model would predict that the industry profit will be the lowest possible number of all four scenarios.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter15: Strategic Games

Section: Chapter Questions

Problem 3MC

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Two firms A and B compete on price. They can choose a low or high price. Firm A is smaller than firm B, and typically earn a lower payoff. For instance if both firms offer a low price firm A earns $400, and B $500, and if they both offer a high price Firm A earns just $400, while firm B earns $1,000. However, when Firm A offers a low price and B a high price firm A can gain an advantage and will earn $600, while B will earn $400. Finally, if the situation is reversed and B offers a low price and B a high price, B will steal the market and earn $1,500 while A will earn nothing. Please construct a payoff matrix for this situation Does Firm A have a dominant strategy?
Consider a modified Traveler’s Dilemma. In terms of strategy options that the players have and the dollars they earn, it is like the standard Traveler’s Dilemma, but the players do not have endless appetite for money. Up to 100 dollars, each dollar feels like a dollar. But any moneybeyond 100 is psychologically like 100 dollars. Assuming that players are maximizers of ‘psychological’ dollars instead of real dollars, describe all the Nash equilibria of this modified Traveler’s Dilemma.
The U.S. government has decided to build a new off ramp for Interstate 5 in California. Exxon and Shell are both interested in building a gas station near the new off ramp. They can build the gas station near the off ramp for northbound traffic or they could build the gas station near the off ramp for southbound traffic. The profits for each outcome are illustrated in the accompanying payoff table: Shellnorthbound Shellsouthbound Exxon northbound Exxon receives$60,000 profitShell receives$50,000 profit Exxon receives$110,000 profitShell receives$100,000 profit Exxonsouthbound Exxon receives$80,000 profitShell receives$120,000 profit Exxon receives$50,000 profitShell receives$50,000 profit a. Select the Nash equilibrium, or equilibria, that occur if Exxon and Shell make these decisions simultaneously. Exxon builds northbound and Shell builds northbound. Exxon builds southbound and Shell builds northbound. Exxon builds southbound and Shell builds southbound.…
Consider the following simultaneous move game: a. What is the maximum amount player 1 should be willing to pay for the opportunity to move first instead of moving at the same time as player 2? Explain carefully. b. What is the maximum amount player 2 should be willing to spend to keep player 1 from getting to move first?
Suppose a $1 bill is to be divided between two players according to a simultaneous-move, one-shot bargaining game. Is there a Nash equilibrium to the bargaining game if the smallest unit in which the money can be divided is $0.01? Assume that if the players ask for more in total than is available, they go home empty-handed.
Explain all will rate what is always true for a pure nash equilibrium of a two-person non zero-sum game A.No player can improve his payoff with a unilateral change of strategy B. it is a Pareto maximum of the payoff matrix C. No player can worsen the payoff of his opponent with a unilateral change of strategy D. It gives worse payoffs to both players than any berge equilibrium
Suppose that Flashfry and Warmbreeze are the only two firms in a hypothetical market that produce and sell air fryers. The following payoff matrix gives profit scenarios for each company (in millions of dollars), depending on whether it chooses to set a high or low price for fryers. Warmbreeze Pricing High Low Flashfry Pricing High 11, 11 2, 15 Low 15, 2 8, 8 For example, the lower-left cell shows that if Flashfry prices low and Warmbreeze prices high, Flashfry will earn a profit of $15 million, and Warmbreeze will earn a profit of $2 million. Assume this is a simultaneous game and that Flashfry and Warmbreeze are both profit-maximizing firms. If Flashfry prices high, Warmbreeze will make more profit if it chooses a price, and if Flashfry prices low, Warmbreeze will make more profit if it chooses a price. If Warmbreeze prices high, Flashfry will make more profit if it chooses a price, and if Warmbreeze prices low, Flashfry will make more profit if…
Alice and Betsy are playing a game in which each can play either of two strategies, leave or stay. If both play the strategy leave, then each gets a payoff of $400. If both play the strategy stay, then each gets a payoff of $800. If one plays stay and the other plays leave, then the one who plays stay gets a payoff of $C and the one who plays leave gets a payoff of $D. When is the outcome where both play leave a Nash equilibrium? a) never, since 800 > 400 b) when 400 > C and D > 800 but not when 800 > D c) whenever 400 > C d) when D > C and C > 400 e) whenever d < 800
Consider the game shown below. In this game, players 1 and 2 must move at the same time without knowledge of the other player’s move. Player 1’s choices are shown in the row headings (A/B), Player 2’s choices are shown in the column headings (C/D). The first payoff is for the row player (Player1) and the second payoff is for the column player (Player 2). Player 2 Player 1 C D A 8, 3 2, 4 B 7, 4 3, 5 Pick the correct answer: Player 1: Has a dominant strategy to choose A Has a dominant strategy to choose B Has a dominant strategy to choose C Has a dominant strategy to choose D Does not have a dominant strategy Player 2: Has a dominant strategy to choose A Has a dominant strategy to choose B Has a dominant strategy to choose C Has a dominant strategy to choose D Does not have a dominant strategy The Nash equilibrium outcome to this game is: A/C A/D B/C B/D There is no pure strategy Nash equilibrium for this game
Consider a two-player, sequential-move game where each player can choose to play right or left. Player 1 moves first. Player 2 observes player 1’s actual move and then decides to move right or left. If player 1 moves right, player 1 receives $0 and player 2 receives $25. If both players move left, player 1 receives –$5 and player 2 receives $10. If player 1 moves left and player 2 moves right, player 1 receives $20 and player 2 receives $20. a. Write this game in extensive form. b. Find the Nash equilibrium outcomes to this game. c. Which of the equilibrium outcomes is most reasonable? Explain.
Consider the following two-player game.First, player 1 selects a number x≥0. Player 2 observes x. Then, simultaneously andindependently, player 1 selects a number y1 and player 2 selects a number y2, at which pointthe game ends.Player 1’s payoff is: u1(x; y1) = −3y21 + 6y1y2 −13x2 + 8xPlayer 2’s payoff is: u2(y2) = 6y1y2 −6y22 + 12xy2Draw the game tree of this game and identify its Subgame Perfect Nash Equilibrium.
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