(Use for questions 1 - 3): Two soap producers, the Fortnum Company and the Maison Company,The payoff matrix (profit in millions of dollars) is as follows:can stress either newspapers or magazines in their forthcoming advertising campaigns.Maison CompanyStress NewspapersStress MagazinesМ, S9MF, S8MM, $8MF, $7MStress NewspapersFortnum CompanyМ, S8MF, $9MМ, $7MF, $8MStress MagazinesWhat will be the profit of each firm?a. Maison Newspapers, Fortnum Newspapers: M, $9M and F, $8MD. Maison Newspapers Fortnum Magazines:M, $8M and F, $9MC.Maison Magazines, Fortnum Newspapers: M, $8M and F, $7MM, $7M and F, $8MMaison Magazines, Fortnum Magazines:

The payoff matric is given below:

Answered: (Use for questions 1 - 3): Two soap…

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 4MC

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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.…
The following is a payoff matrix showing profit in millions of dollars when two companies simultaneously decide on various advertising budgets ($1 million, $2 million, or $3 million): Pizza Hut $1 mill $2 mill $3 mill $1 mill $120 / $175 110 / 160 100 / 170 Papa Johns $2 mill 130 / 150 115 / 145 110 / 155 $3 mill 140 / 125 120 / 120 105 / 130 a. In the first round of strategy elimination (when all three possible budgets are under consideration), which ad budget would the companies exclude? b. After the first round of elimination (previous question), would either company make a second-round elimination? c. What would be the likely outcome of this simultaneous advertising decision (i.e. what ad budget would each company end up choosing)?
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.
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.
Economics - Game Theory & Business Strategy Inverse Market Demand for tires is P = 200 - .01Q We assume the manufacturer sets a Price, 'X', for the tires and the manufacrturer moves first, selecting 'X' before any sales decisions are made. In this variation, we assume there are 3 retail firms, each with Market Power. The firms (1,2,3) make their sales decisions (q1,q2,q3) simultaneously, taking the manufacturer's price X as given. Total market sales, Q, then equal q1 + q2 + q3. We assume the only cost for the retailers is the cost 'X' for each tire. Additionally, the manufacturer produces the tires at a Marginal Cost of $10 a tire. **** Write out the Extensive form of this game ****
[The soft drink industry is dominated by two cola firms- DEW and HEW. The market is worth $8 billion. Each firm can decide whether to advertise or not, but advertising costs $2 billion to any firm undertaking it. Moreover, advertising will create only negligible new demand as the market is already saturated. So, for the purpose of this question, assume that the market remains at $8 billion regardless of advertising. If one firm advertises and the other does not, then the former captures the whole market. If both firms advertise, then DEW captures 60% of the market and HEW captures 40% of the market, but the advertising must be paid for. If neither firm advertises, then the market is again split 60:40, with 60% going to DEW and 40% to HEW.] [Draw the payoff matrix for this game where each player’s payoff is equal to the value of market it captures less the cost of advertisement. [Do any of the firms have dominant strategies? If so, what are they? Is there a dominant strategy…
[The soft drink industry is dominated by two cola firms- DEW and HEW. The market is worth $8 billion. Each firm can decide whether to advertise or not, but advertising costs $2 billion to any firm undertaking it. Moreover, advertising will create only negligible new demand as the market is already saturated. So, for the purpose of this question, assume that the market remains at $8 billion regardless of advertising. If one firm advertises and the other does not, then the former captures the whole market. If both firms advertise, then DEW captures 60% of the market and HEW captures 40% of the market, but the advertising must be paid for. If neither firm advertises, then the market is again split 60:40, with 60% going to DEW and 40% to HEW.] Draw the payoff matrix for this game where each player’s payoff is equal to the value of market it captures less the cost of advertisement. (please explain how you calculate the payoff matrix)
8. Collusive outcome versus Nash equilibrium Consider a remote town in which two restaurants, All-You-Can-Eat Café and GoodGrub Diner, operate in a duopoly. Both restaurants disregard health and safety regulations, but they continue to have customers because they are the only restaurants within 80 miles of town. Both restaurants know that if they clean up, they will attract more customers, but this also means that they will have to pay workers to do the cleaning. If neither restaurant cleans, each will earn $12,000; alternatively, if they both hire workers to clean, each will earn only $9,000. However, if one cleans and the other doesn't, more customers will choose the cleaner restaurant; the cleaner restaurant will make $16,000, and the other restaurant will make only $4,000.
4). The following is a payoff matrix showing profit in millions of dollars when two companies simultaneously decide on various advertising budgets ($1 million, $2 million, or $3 million): a. In the first round of strategy elimination (when all three possible budgets are under consideration), which ad budget would the companies exclude? b. After the first round of elimination (previous question), would either company make a second-round elimination? c. What would be the likely outcome of this simultaneous advertising decision (i.e. what ad budget would each company end up choosing)?
10. Game theory terminology Select the term that best describes each definition listed in the following table. Definition Nash Equilibrium Dominant Strategy Collusion Tit-for-tat Strategy Payoff Matrix/Table Prisoners' Dilemma Game A set of strategies (one for each player) in which each player's strategy is the best option for that player, given the chosen strategy of the player's opponents A strategy in which a player cooperates until the other player defects and then defects until the other player cooperates again A case in which individually rational behaviour leads to a jointly inefficient outcome A player's best choice, if it exists, regardless of his or her opponent's strategy
Suppose two companies, Apples and Dell, are a competing duopoly. If both companies charge the high price, they each earn $700 million in economic profit. If both companies charge the low price, they each earn $500 million in economic profit. If one company charges a high price and the other a low price, the company charging the higher price earns $450 million in economic profit and the company charging the lower price earns $800 million in economic profit. 1. What is the Nash equilibrium? Select all possible answers from the answer list. 2. Thinking back to your answer for the Nash equilibrium, can firms do better than the outcome you identified? Explain.
Suppose that total unit sales of iPhones and Android phones depends on both Apple’s and Google’s advertising expenditures: Google Advertise Don’t Apple Advertise 100, 100 120, 60 Don’t 60, 120 80, 80 To find the firm’s profits from the sales figures, assume that the price is $30, that the marginal cost is $20, and that the fixed cost of advertising is $300. (a) Fill in the profits in the following simultaneous-move game: Google Advertise Don’t Apple Advertise ? ? Don’t ? ? (b) What is the Nash equilibrium of the game? What strategies result in thehighest industry profits? Explain in words why the firms don’t choosethose strategies?

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