Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 10, Problem 10P
To determine
The equilibrium strategy combination in prisoners’ dilemma
Concept Introduction:
Prisoners’ Dilemma- It is a classic duopoly paradox in decision analysis under games theory. It shows how rational individuals or individual firms act in self-interest and pursue a strategy that is not mutually beneficial or ideal.
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Game theory.
Pretend you're in the following situation: A and B are two different cloth making enterprises. Both companies A and B were successful in bringing their products to market. However, because company A was the first to make a move, a significant portion of the country's population chose to use the product manufactured by company A because they had already established a positive reputation in the market. Although the revenues of company A were increasing, the company B was struggling to maintain its position in the market with their goods.
Because firm A was the first to make a move, it enjoys a competitive advantage over company B in the marketplace.
1. Prove that the situation IS а game (explain strategic interaction/conflict) and solve the game with appropriate approach.
A game involves two players: player A and player B. Player A has three strategies a1, a2 and a3 while player B has three strategies b1, b2 and b3.
Player B
b1
b2
b3
a1
-40,30
70,20
-10,120
Player A
a2
40,60
80,80
60,20
a3
-30,40
-50,110
150, -70
Assuming that this is a one-time game, answer the following questions:
Is there any dominant strategy for each player?
What is the secure strategy of each player.
What is the Nash equilibrium of the game?
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.
Knowledge Booster
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