Question 2 (Chapter 13) Buy-right is a chain of grocery stores operating in small cities throughout the southwestern United States. Buy-right's major competition comes from another chain, Acme Food Stores. Both firms are currently contemplating their advertising strategy for the region. The possible outcomes are illustrated by the payoff matrix below. Acme Foods Increase Don't Increase Advertising Advertising Buy-right Increase Advertising Don't Increase Advertising 20, 15 35, -5 2, 30 25, 25 Entries in the payoff matrix are profits. Buy-right's profit is before the comma, Acme's is after the comma. Describe what is meant by a dominant strategy. Given the payoff matrix above, does each firm have a dominant strategy?· Under what circumstances would there be no dominant strategy for one or both firms? 2.1 2.2 2.3 Question 3 (Chapter 13) Two firms at the St. Louis airport have franchises to carry passengers to and from hotels in downtown St. Louis. These two firms, Metro Limo and United Limo, operate nine passenger vans. These duopolists cannot compete with price, but they can compete through advertising. Their payoff matrix is below: United Limo Don't Increase Advertising Increase Advertising Metro Limo Increase Advertising Don't Increase Advertising 25, 15 30, 0 15, 20 40, 5 3.1 Does each firm have a dominant strategy? If so, explain what that strategy is. What is the Nash equilibrium? Explain where the Nash equilibrium occurs in the payoff matrix. 3.2
Question 2 (Chapter 13) Buy-right is a chain of grocery stores operating in small cities throughout the southwestern United States. Buy-right's major competition comes from another chain, Acme Food Stores. Both firms are currently contemplating their advertising strategy for the region. The possible outcomes are illustrated by the payoff matrix below. Acme Foods Increase Don't Increase Advertising Advertising Buy-right Increase Advertising Don't Increase Advertising 20, 15 35, -5 2, 30 25, 25 Entries in the payoff matrix are profits. Buy-right's profit is before the comma, Acme's is after the comma. Describe what is meant by a dominant strategy. Given the payoff matrix above, does each firm have a dominant strategy?· Under what circumstances would there be no dominant strategy for one or both firms? 2.1 2.2 2.3 Question 3 (Chapter 13) Two firms at the St. Louis airport have franchises to carry passengers to and from hotels in downtown St. Louis. These two firms, Metro Limo and United Limo, operate nine passenger vans. These duopolists cannot compete with price, but they can compete through advertising. Their payoff matrix is below: United Limo Don't Increase Advertising Increase Advertising Metro Limo Increase Advertising Don't Increase Advertising 25, 15 30, 0 15, 20 40, 5 3.1 Does each firm have a dominant strategy? If so, explain what that strategy is. What is the Nash equilibrium? Explain where the Nash equilibrium occurs in the payoff matrix. 3.2
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter10: Monopolistic Competition And Oligopoly
Section: Chapter Questions
Problem 13PAE
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Please answer Question 3
Transcribed Image Text:Question 2 (Chapter 13)
Buy-right is a chain of grocery stores operating in small cities throughout the
southwestern United States. Buy-right's major competition comes from another chain,
Acme Food Stores. Both firms are currently contemplating their advertising strategy
for the region. The possible outcomes are illustrated by the payoff matrix below.
Acme Foods
Increase
Don't Increase
Advertising
Advertising
Buy-right
Increase
Advertising
Don't Increase
Advertising
20, 15
35, -5
2, 30
25, 25
Entries in the payoff matrix are profits. Buy-right's profit is before the comma, Acme's
is after the comma.
Describe what is meant by a dominant strategy.
Given the payoff matrix above, does each firm have a dominant strategy?·
Under what circumstances would there be no dominant strategy for one or both
firms?
2.1
2.2
2.3
Question 3 (Chapter 13)
Two firms at the St. Louis airport have franchises to carry passengers to and from
hotels in downtown St. Louis. These two firms, Metro Limo and United Limo, operate
nine passenger vans. These duopolists cannot compete with price, but they can
compete through advertising.
Their payoff matrix is below:
United Limo
Don't Increase
Advertising
Increase
Advertising
Metro Limo
Increase
Advertising
Don't Increase
Advertising
25, 15
30, 0
15, 20
40, 5
3.1
Does each firm have a dominant strategy? If so, explain what that strategy is.
What is the Nash equilibrium? Explain where the Nash equilibrium occurs in the
payoff matrix.
3.2
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