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Suppose that firm A and firm B repeatedly face the situation presented in the table below, and the interest rate is 40 percent. The firms agree to charge a high
|
|
Fir |
m B |
|
|
|
Firm A |
Price |
|
Low |
High |
|
Low |
|
0, 0 |
50; -40 |
|
|
High |
|
-40, 50 |
10; 10 |
- What are firm’s A profits if it cheats on the collusive agreement?
- What are A’s profits if it does not cheat on the collusive agreement?
Does equilibrium result where the firms charge the high price each period?
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Solved in 2 steps
- Suppose firm A and firm B repeatedly face the situation presented in Table and the interest rate is 40 percent. The firms agree to charge a high price each period, provided neither firm has cheated on this agreement in the past. 1. What are firm A’s profits if it cheats on the collusive agreement? 2. What are firm A’s profits if it does not cheat on the collusive agreement? 3. Does an equilibrium result where the firms charge the high price each period?Suppose Toyota and Honda must decide whether to make a new kind of side-impact airbags standard equipment on all models. Side impact-airbags raise the price of each automobile by $1000. If both firms make side-impact airbags standard equipment, each company will earn profits of $2.5 billion. If neither company adopts the side-impact airbag technology, each company will earn $1 billion (due to lost sales to other automakers). If one company adopts the technology as standard equipment and the other does not, the adopting company will earn a profit of $3 billion and the other company will lose $1.5 billion. If you were a decision maker at Honda, would you make side-impact airbags standard equipment?Assume Waterland and Aquataste make a nonbinding, informal agreement that each will produce 250 gallons of water, charge $1.50 per gallon, and evenly split the profit of $750. If Aquataste reneges on the agreement and produces 350 gallons, Waterland has an incentive to renege on the agreement by producing 350 gallons because Waterland’s profits would increase to $_____ , which is better than the $312.50 Waterland would earn by sticking with the agreement. (Provide your answer to two decimal places.)
- The following table contains the possible actions and payoffs of players 1 and 2. Player 2 Cooperate Not Cooperate Player Cooperate 15 , 15 -20 , 20 1 Not Cooperate 20 , -10 10 , 10 This game is infinitely repeated, and in each period both players must choose their actions simultaneously. If both players follow a tit-for-tat strategy, then they can Cooperate in equilibrium if the interest rate r is . At an interest rate of r=0.5, . If instead of playing an infinite number of times, the players play the game only 10 times, then in the first period player 1 receives a payoff ofSuppose Toyota and Honda must decide whether to make a new breed of side-impact airbags standard equipment on all models. Side-impact airbags raise the price of each automobile by $1,000. If both firms make side-impact airbags standard equipment, each company will earn profits of $2.5 billion. If neither company adopts the side-impact airbag technology, each company will earn $1 billion (due to lost sales to other automakers). If one company adopts the technology as standard equipment and the other does not, the adopting company will earn a profit of $3 billion and the other company will lose $1.5 billion. If you were a decision maker at Honda, would you make side-impact airbags standard equipment? Explain.q19 If you advertise and your rival advertises, you each will earn $4 million in profits. If neither of you advertises, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $1 million and the non-advertising firm will earn $5 million. If you and your rival plan to be in business for 10 years, then the Nash equilibrium is a. for each firm to not advertise in any year. b. for neither firm to advertise in early years but to advertise in later years. c. for each firm to advertise every year. d. for each firm to advertise in early years but not advertise in later years.
- Suppose Toyota and Honda must decide whether to make a new breed of side-impact airbags standard equipment on all models. Side-impact airbags raise the price of each automobile by $1,000. If both firms make side-impact airbags standard equipment, each company will earn profits of $0.5 billion. If neither company adopts the side-impact airbag technology, each company will earn $1.5 billion. If one company adopts the technology as standard equipment and the other does not, the adopting company will earn a profit of $2 billion and the other company will earn $-1 billion.If you were a decision maker at Honda, would you make side-impact airbags standard equipment?multiple choice 1 There is not enough information to answer the question. No Yes If Toyota and Honda were able to cooperate, would you expect this same outcome?multiple choice 2 Yes No There is not enough information to answer the question.Suppose that two players are playing the following game. Player 1 can choose either Top or Bottom, and Player 2 can choose either Left or Right. The payoffs are given in the following table: Player 1 Player 2 Left Right Top 6 1 9 4 Bottom 2 4 5 3 where the number on the left is the payoff to Player 1, and the number on the right is the payoff to Player 2. D) What is Player 1’s maximin strategy?E) What is Player 2’s maximin strategy?F) If the game were played with Player 1 moving first and Player 2 moving second, using the backward induction method we went over in class, what strategy will each player choose?Assume the market for a product can be described as a Cournot duopoly with two identical firms. The Nash-equilibrium in this market is that the two firms produce the same quantity. Hence, they will have identical market shares, each will have 50%. Assume that firm 1 decides to invest in a technology that reduces its marginal costs. a) What will happen to the two firms market shares? You must explain how you find the answer. b) What will happen to total production and the price of the product? Again, explain your answer.
- Consider a game with two players A and B and two strategies X and Z. If both players play strategy X, A will earn $300 and B will earn $700. If both players play strategy Z, A will earn $1,000 and B will earn $600. If Player A plays strategy X and player B plays strategy Z, A will earn $200 and B will earn $300. If Player A plays strategy Z and player B plays strategy X, A will earn $500 and B will earn $400. Player B finds that: a) strategy Z is a dominant strategy. b) strategy X is a dominant strategy. c) he has no dominant strategy. d) strategy X is a dominated strategy. e) strategy Z is a dominated strategy.Based only on the knowledge that the premerger market share of two firms proposing to merge was 30 percent each, an economist working for the Justice Department was able to determine that, if approved, the postmerger HHI would increase by 1,800. How was the economist able to draw this conclusion without knowledge of the other firms’ market shares? From this information, can you devise a general rule explaining how the Herfindahl-Hirschman index is affected when exactly two firms in the market merge?Why can Q-learning sustain collusion? a. Because collusion maximizes firms' profit. b. Because collusion is the Nash equilibrium of the pricing game, even if it is played only once. c. Because the algorithm takes into account future profits, and learn that price cutting today will lead to price war tomorrow. d. Because firms use the algorithm to communicate with each other and sustain collusion. 21 Suppose a platform tries to recommend the best movie to Ann and Ben. Movie 1's quality is uniformly distributed from 0 to 1. Movie 2's quality is uniformly distributed from 0.5 to 1. Suppose the platform recommends a movie to Ann and Ben at the same time. What are the expected quality of movie 1 and 2, and which one should it recommend? a. 0.5, 0.5, movie 1. b. 0.75, 0.5, movie 1. c. 0.5, 1, movie 2. d. 0.5, 0.75, movie 2.
