Microeconomics (9th Edition) (Pearson Series in Economics)
9th Edition
ISBN: 9780134184890
Author: PINDYCK
Publisher: PEARSON
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Question
Chapter 13, Problem 3E
(a)
To determine
The outcome of maximin strategy.
(b)
To determine
Head-start or First mover outcome.
(c)
To determine
Advantage of first mover and spending.
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Refer to the normal-form game of price competition in the payoff matrix below
Firm B
Low Price
High Price
Firm A
Low Price
0, 0
50, −10
High Price
−10, 50
20, 20
Suppose the game is infinitely repeated, and the interest rate is 20 percent. Both firms agree to charge a high price, provided no player has charged a low price in the past. This collusive outcome will be implemented with a trigger strategy that states that if any firm cheats, then the agreement is no longer valid, and each firm may make independent decisions. Will the trigger strategy be effective in implementing the collusive agreement? Please explain and show all necessary calculations.
Two firms, X and Y, are planning to market their new products. Each firm can develop TV, Laptop. Market research indicates that the resulting profits to each firm for the alternative strategies are given by the following payoff matrix : MATRIX IS ATTACHED
Find the Nash equilibria for this game, assuming that both firms make their decisions at the same time. (explain the decision step by step)
If each firm is risk averse and uses a maximin strategy, what will be the resulting equilibrium? (explain the decision step by step)
What will be the equilibrium if Firm X makes its selection first? If Firm Y goes first?
Two small towns that are located near each other are thinking of building a fancy new shopping mall to attract business. However, building the mall is expensive, and will not be profitable unless the other town does not build the mall. The following table shows each town's payoffs under each of the possible outcomes, with the first number being Town A's payoff and the second number being Town B's payoff. The dominant strategy is for
Town B
Town A
Build Mall
Don't Build Mall
Build Mall
(-$100, -$100)
($2,000, -$500)
Don't Build Mall
(-$500, $2,000)
(0, 0)
A-Town B to build the mall and Town A will not
B-neither town to build the mall
C-both towns to build the mall
D-Town A to build the mall and Town B will not
Chapter 13 Solutions
Microeconomics (9th Edition) (Pearson Series in Economics)
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Similar questions
- Two players, Player 1 and Player 2, are playing a repeated prisoner’s dilemma. Payoffs are described in the following matrix. Answer which statement is correct: Select one: a. A trigger strategy will never support (A,A) as an equilibrium b. A tit-for-tat strategy will never support (A,A) as an equilibrium c. A tit-for-tat strategy will support (A,A) as an equilibrium if δ > 0.7 d. A trigger strategy will support (A,A) as an equilibrium if δ > 0.7arrow_forwardTwo players play the following game for infinite times. For the player to continue to cooperate what would be the ranges of their discount factor, δ_1 and δ_2, respectively? cooperate betray cooperate (10,20) (-25,30) betray (15, -22) (-12, -18)arrow_forwardTwo car producers, Firm A operates in Country A and Firm B operates in Country B, are considering producing a new 8-seater Multi-Purpose Vehicle (MPV)for the international market. The payoff matrix is as follows (payoff values are in millions of dollars). The above payoffs imply that the international market demand is large enough to support only one producer. If both firms produce, both will sustain a loss. (i) Explain and solve for the Nash equilibrium in this game. (ii) Suppose the government of Country A decides to subsidise Firm A with $25 million if it produces. Revise the payoff matrix to account for this subsidy. What is the new equilibrium outcome? Compare the two outcomes and discuss the effect of the subsidy.arrow_forward
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