Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
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Chapter 13, Problem 10E
To determine
To Ascertain:
Explain with reasons about the given scenario and its outcomes.
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Suppose that there are only two firms in a market in which demand is given by p = 64 - Q, where Q is the total production of the two firms. Each firm can choose either a low level of output, qL = 15, or a high level of output, qH = 20. The unit cost of production for both firms is $4. Write down the normal-form representation of the game in which the strategic variable for each firm is the quantity of output and the firms make their choices simultaneously. Find the pure strategy Nash equilibrium of this game (quantities produced and market price).
10) Consider a repeated game in which the following one-shot game between two players is repeated "infinitely." Denote by "d" the discount factor. (Assume both players have the same discount factor.)
Player 2
Cooperate
Defect
Player 1
Cooperate
5, 4
0, 5
Defect
6, 0
1, 1
The two players try to support cooperation by using "grim trigger strategy" as discussed in class. Answer YES or NO to each of the following three questions.
(a) Can they support cooperation if the common discount factor, d, is equal to 0.23?
(b) Can they support cooperation if the common discount factor, d, is equal to 0.4?
(c) Can they support cooperation if the common discount factor, d, is equal to 0.15?
Which of the following is FALSE for the grim trigger strategy and the infinite horizon repeated Prisoner's Dilemma game illustrated above?
A.
In the grim trigger strategy profile, if a player chooses D in a period, then both players chooses D forever after that period
B.
The threshold discount factor for sustaining cooperation under grim trigger strategy depends on the utility numbers in the stage game
C.
If all utility numbers remain the same but 3 is replaced by 5 in the stage game, then cooperation CANNOT be sustained in this game for all possible values of the discount factor.
Chapter 13 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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