MCQ 27 Consider the following game in which two firms (OLD and NEW) are considering whether or not to advertise to increase sales. Each firm knows that the impact on profits depends on what the other firm chooses to do. The possible profit outcomes of the game are shown below, with OLD's profits shown as the first number in each pair and NEW's profits shown as the second number: NEW Advertise Not Advertise Advertise 10, 5 15, 1 OLD Not Advertise 5, 8 20, 3 Assuming the firms aim to earn as much profit as possible, which of the following is TRUE for the game? A I do not want to answer this question. B OLD's dominant strategy is to advertise C OLD's dominant strategy is not to advertise D NEW's dominant strategy is not to advertise E NEW's dominant strategy is to advertise F the dominant strategy for both OLD and NEW is to advertise

MCQ 27 Consider the following game in which two firms (OLD and NEW) are considering whether or not to advertise to increase sales. Each firm knows that the impact on profits depends on what the other firm chooses to do. The possible profit outcomes of the game are shown below, with OLD's profits shown as the first number in each pair and NEW's profits shown as the second number: NEW Advertise Not Advertise Advertise 10, 5 15, 1 OLD Not Advertise 5, 8 20, 3 Assuming the firms aim to earn as much profit as possible, which of the following is TRUE for the game? A I do not want to answer this question. B OLD's dominant strategy is to advertise C OLD's dominant strategy is not to advertise D NEW's dominant strategy is not to advertise E NEW's dominant strategy is to advertise F the dominant strategy for both OLD and NEW is to advertise

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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Q13 George and Jerry are competitors in a local market. Each is trying to decide if it is better to advertise on TV, on radio, or not at all. If they both advertise on TV, each will earn a profit of €3,000. If they both advertise on radio, each will earn a profit of €5,000. If neither advertises at all, each will earn a profit of €10,000. If one advertises on TV and the other advertises on radio, then the one advertising on TV will earn €4,000 and the other will earn €2,000. If one advertises on TV and the other does not advertise, then the one advertising on TV will earn €8,000 and the other will earn €5,000. If one advertises on radio and the other does not advertise, then the one advertising on radio will earn €9,000 and the other will earn €6,000. If both follow their dominant strategy, then George will: (a) advertise on TV and earn €3,000; (b) advertise on radio and earn €5,000; (c) advertise on TV and earn €8,000; (d) not advertise and earn €10,000;
For questions 32 - 35 consider the following "research and development" game. Firms A and B are contemplating whether or not to invest in R8D. Each has two options: "Invest" and "Abstain." A firm that invests will invent product X with a probability of 0.5, whereas a firm that abstains is incapable of invention. Investment costs $6. If a firm doesn't invent X. it makes 50 in revenue. If a firm invests and is the only one to invent X. it becomes a monopolist and generates $20 in revenue. If both firms invent X, each firm becomes a duopolist, and generates $8 in revenue. Revenues are gross figures (i.e. they are not net of investment costs), and there are no costs besides investments costs (i.e. no variable cost of production etc.). The firms are risk-neutral entities, and are uninformed of each other's investment decisions. Find the Nash Equilibrium (or Equilibria) of the "research and development" game. A. There are no Nash Equilibria B. Invest/Invest C. Invest/Abstain, and…
For questions 32 - 35 consider the following "research and development" game. Firms A and B are contemplating whether or not to invest in R8D. Each has two options: "Invest" and "Abstain." A firm that invests will invent product X with a probability of 0.5, whereas a firm that abstains is incapable of invention. Investment costs $6. If a firm doesn't invent X. it makes 50 in revenue. If a firm invests and is the only one to invent X. it becomes a monopolist and generates $20 in revenue. If both firms invent X, each firm becomes a duopolist, and generates $8 in revenue. Revenues are gross figures (i.e. they are not net of investment costs), and there are no costs besides investments costs (i.e. no variable cost of production etc.). The firms are risk-neutral entities, and are uninformed of each other's investment decisions. Find the Nash Equilibrium (or Equilibria) of the "research and development" game. There are no Nash Equilibria Invest/Invest Invest/Abstain, and Abstain/Invests…
14. Company A and Company B are each telecommunications manufacturers. Both companies manufacture the same products, and they make their decisions based on the other's actions. Both companies are considering opening retail outlets to increase their profits. The payoff matrix shows the profits of the companies in millions of dollars if they choose to open retail outlets. The government imposes a new $5 million tax to open retail outlets. What is the expected outcome of the new payoff matrix, given the tax? The Nash equilibrium is for Company A to not open retail outlets and for Company B to open retail outlets. The Nash equilibrium is for Company A to open retail outlets and for Company B to not open retail outlets. The Nash equilibrium is for both Company A and Company B to open retail outlets. The Nash equilibrium is for both Company A and Company B to not open retail outlets. There is no Nash equilibrium after the change given in the scenario.…
Exercise 6.1Suppose that two airlines decide to collude. Analyse the game between these two companies. Suppose that each of them can charge for tickets a high price or a low price. If one of them charges 100 euros, it gets few profits if the other also charges 100 euros and high profits if the other charges 200 euros. On the other hand, if the company charges 200 euros, it obtains very little profit if the other charges 100 euros and an average profit if the other also charges 200 euros. a) Represent the matrix of results of this game. b) What is the Nash equilibrium in this game? Explain your answer. c) Is there an outcome that would be better than the Nash equilibrium for the two airlines? How could it be achieved? Who would lose out if it were reached?
There are two competing companies: Starbucks and Coffee Bean. Both companies want to determine whether they should launch a new advertising campaign for their coffee shops. If both companies start advertising, Starbucks will attract 4 new customers, while Coffee Bean will attract 3 new customers. However, if both companies decide not to advertise, Starbucks will attract only 3 new customers and 2 new customers for Coffee Bean. If only Starbucks decides to advertise, it will attract 5 new customers, while Coffee Bean will attract only 1 new customer for not advertising. While if only Coffee Bean decides to advertise, it will attract 5 new customers, and Starbucks will only attract 2 new customers for not advertising. What is the optimal strategy for Coffee Bean if Starbucks chooses to Advertise? Please explain in detail In relation to that, if Coffee Bean chooses to Advertise, the Payoff is __. In relation to that, if Coffee Bean chooses Not to Advertise, the Payoff is __. What is…
q52 If you advertise and your rival advertises, you each will earn 14 million in profits. If neither of you advertises, you will each earn 20 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn 10 million and the non-advertising firm will earn 16 million. If you and your rival plan to be in business for only one year, the Nash equilibrium is a. for each firm to advertise. b. for the other firm to advertise and your firm not to advertise. c. for your firm to advertise and the other not to advertise. d. for neither firm to advertise.
You are the manager in a market composed of 20 firms, each of which has a 5.00 percent market share. In addition, each firm has a strong financial position and is located within a 100-mile radius of its competitors. a. Calculate the premerger Herfindahl-Hirschman index (HHI) for this market? b. Suppose that any two of these firms merge. What is the postmerger HHI? c. Based only on the information contained in this question and on the U.S. Department of Justice Horizontal Merger Guidelines described in this chapter, do you think the Justice Department would attempt to block a merger between any two of the firms?multiple choice It may but will also consider other factors. It likely will not. It likely will.
The two major scooter companies in India, ABC and XYZ, are competing for a fixed market. If both manufacturers make major model changes in a year, then their percentage market share not change. Also, if they both do not make major model changes, their percentage market share remains constant. If ABC makes a major model change and XYZ does not, then ABC is able to take away a% of the market away from XYZ, and if XYZ makes a major model change ABC does not, XYZ is able to take away b% of the market away from ABC. Express this as a 2 x 2 game and solve for the optimal strategy for each of the companies.
You are the manager in a market composed of eight firms, each of which has a 12.5 percent market share. In addition, each firm has a strong financial position and is located within a 100-mile radius of its competitors. a. Calculate the premerger Herfindahl-Hirschman index (HHI) for this market. b. Suppose that any two of these firms merge. What is the postmerger HHI? c. Based only on the information contained in this question and on the Horizontal Merger Guidelines described in this chapter, do you think the Justice Department (or FTC) would attempt to block a merger between any two of the firms? Explain
Suppose that GE is trying to prevent Maytag from entering the market for high efficiency clothes dryers. Even though high efficiency dryers are more costly to produce, they are also more profitable as they command sufficiently higher prices from consumers. The following payoffs table shows the annual profits for GE and Maytag for the advertising spending and entry decisions that they are facing. GE MAYTAG Advertising = $12m Advertising = $0.7m Stay Out $0, $30m $0, $35m Enter $1m , $20m $12m, $15 Based on this information, can GE successfully prevent Maytag from entering this market by increasing its advertising levels? What is the equilibrium outcome in this game? Suppose that an analyst at GE is convinced that just a little bit more advertising by GE, say another $2m, would be sufficient to deter enough customers from buying Maytag, thus, yield less than $0 profits for Maytag in the event it enters. Suppose that spending an extra $2m on advertising…
Exercise 6.6. Consider a duopoly in which companies compete according to Cournot's model. The inverse market demand curve is: P(Q)=100-Q , where Q=Q1+Q2 and the average and marginal costs of firms are constant and equal to 40 Calculate profits would each company make? How much would company 1 be willing to invest to reduce its CM from 40 to 25, assuming company 2 does not support it? Graphically show and comment on all results.