Microeconomics, Student Value Edition (2nd Edition)
2nd Edition
ISBN: 9780134461786
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Question
Chapter 13, Problem 1P
To determine
The dominant strategy, if any of the following.
(a) Astounding
(b) Broadcast
(c)
To determine
Existence of a dominant strategy equilibrium in the two-player game.
(d)
To determine
Existence of a Nash equilibrium.
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Little Kona is a small coffee company that is considering entering a market dominated by Big Brew. Each company's profit depends on whether Little Kona enters and whether Big Brew sets a high price or a low price:
True or False: Only Little Kona has a dominant strategy in this game.
True or False
Which of the following outcomes represent a Nash equilibrium in this case? Check all that apply.
Big Brew maintains a high price and Little Kona enters.
a.Big Brew maintains a low price and Little Kona enters.
b.Big Brew maintains a high price and Little Kona does not enter.
c.Big Brew maintains a low price and Little Kona does not enter.
Big Brew threatens Little Kona by saying, “If you enter, we're going to set a low price, so you had better stay out.”
True or False: Little Kona should not believe the threat.
True or False
If the two firms could collude and agree on how to split the total profits, what outcome would they…
Two firms are considering simultaneously developing a new product for a market. The costs of developing the product are $10m but there will only be revenue in the market of $40m if only one of the firms develops the product. If both firms develop the product then earnings/revenues will be competed away.
a) Capture this entry game in a payoff matrix.
b) What is the Nash equilibrium and why? Please provide explanation.
c) Does either firm have a dominant strategy? Please provide explanation.
The above table shows the payoffs that either Darrin or Rob receive depending on whether they choose a high or a low price strategy. Who has a dominant strategy?
The above table shows the payoffs that either Darrin or Rob receive depending on whether they choose a high or a low price strategy. The predicted outcome is
Chapter 13 Solutions
Microeconomics, Student Value Edition (2nd Edition)
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