Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (9th Edition) (Pearson Series in Economics)
9th Edition
ISBN: 9780134643175
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 13, Problem 7E
(a)
To determine
Dominant strategy.
(b)
To determine
Choice of strategy and change in the equilibrium.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Assume two countries (US and Germany) are facing the decision of whether to participate in the Paris Agreement or not. The following payoff matrix contains the estimated payoffs for both countries for all possible strategies.
Germany
US
Join
Not join
Join
A: (500, 360)
B: (100, 200)
Not join
C: (450, 300)
D: (450, 350)
What is the Nash equilibrium of this game if it has to be played sequentially and US moves first?
US joins, Germany joins
US joins, Germany does not join
US does not join, Germany joins
US does not join, Germany does not join
Consider trade relations between the United States and Mexico. Assume that the leaders of the two countries believe the payoffs to alternative trade policies are shown in the following payoff matrix:
United States' Decision
Low Tariffs
High Tariffs
Mexico's Decision
Low Tariffs
$28 billion, $28 billion
$20 billion, $30 billion
High Tariffs
$30 billion, $20 billion
$25 billion, $25 billion
The dominant strategy for the United States is always to choose tariffs. The dominant strategy for Mexico is always to choose tariffs.
True or False: The Nash equilibrium outcome for trade policy is for the United States to have low tariffs and Mexico to have high tariffs.
True
False
In 1993, the U.S. Congress ratified the North American Free Trade Agreement, in which the United States and Mexico agreed to reduce trade barriers simultaneously.
True or False: Given the trade strategy decisions in the table, the United States is better off and…
Give two examples other than oligopoly that show how the prisoners' dilemma helps to explain behavior.
Chapter 13 Solutions
Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (9th Edition) (Pearson Series in Economics)
Knowledge Booster
Similar questions
- In Game 1 below, the US and Iran are bargaining over the state of Iran’s nuclear program. The US must first decide whether to impose sanctions on Iran or propose a compromise. If the US imposes sanctions, Iran can either back down or retaliate. If the US proposes a compromise, Iran can either accept it or accelerate its nuclear effort. If Iran does the latter, the US can either back down (i.e., the US is “weak”) or conduct an air strike (i.e., the US is “strong”). The background to this game is similar to ones we have discussed before. Iran’s nuclear program can range from 0 to 1, where 0 means no nuclear program and 1 means a fully functioning nuclear weapon. Any intermediate compromise X (which must lie between 0 and 1, 0 < X < 1) gives Iran a utility of X and the US a utility of 1-X. Payoffs for the other outcomes are as shown in the cells: the top number represents the US payoff, and the bottom number represents Iran’s payoff. (Don’t worry about where these numbers come…arrow_forwardIn Game 1 below, the US and Iran are bargaining over the state of Iran’s nuclear program. The US must first decide whether to impose sanctions on Iran or propose a compromise. If the US imposes sanctions, Iran can either back down or retaliate. If the US proposes a compromise, Iran can either accept it or accelerate its nuclear effort. If Iran does the latter, the US can either back down (i.e., the US is “weak”) or conduct an air strike (i.e., the US is “strong”). The background to this game is similar to ones we have discussed before. Iran’s nuclear program can range from 0 to 1, where 0 means no nuclear program and 1 means a fully functioning nuclear weapon. Any intermediate compromise X (which must lie between 0 and 1, 0 < X < 1) gives Iran a utility of X and the US a utility of 1-X. Payoffs for the other outcomes are as shown in the cells: the top number represents the US payoff, and the bottom number represents Iran’s payoff. (Don’t worry about where these numbers come…arrow_forwardDad baked a chocolate cake for his twins Jack and Mary on their birthday, and he wants Jack and Mary to divide it without any screaming and mess. Mom devises the following procedure: First, Jack (who was born first) proposes a division of the cake that Mary can accept or reject. If the first offer is accepted by Mary, then the game is over and Mary and Jack get the split of cake offered by Jack. If the offer is rejected by Mary, then Mom gets to eat half of the cake, and next Mary offers a division of the remaining cake to Jack that he can either accept or reject. If the second offer is accepted by Jack, then the game is over and Mary and Jack get the split of the remaining cake offered by Mary. If the kids do not reach an agreement in the second round (Jack rejects Mary's offer). Mom gets to eat the rest of the cake by herself. The cake has two equal parts: one with cherries and one with coconut. If Jack gets fraction x in [0, 1] of the cherry part and y in [0, 1] of the coconut part,…arrow_forward
- For the R & D game that Kimberly-Clark(Kleenex) and Procter & Gamble (Puffs) Play. Each firm has two strategies: Do R&D or do not R&D. If neither firm does R&D, Kimberly-Clark makes $30 million and Procter & Gamble makes $70 million. If both does R&D, Kimberly-Clark makes $5 million and Procter & Gamble makes $45 million. if only Procter & Gamble does R&D, it makes $85 million and Kimberly-Clark makes -$10 million, and if only Kimberly-Clark does R&D it makes $85 million and Procter & Gamble makes -$10 million. 7) Create the payoff matrix for this game?arrow_forwardIs the solution to the prisoner’s dilemma game a Nash equilibrium? Why? The solution to the prisoner’s dilemma game is a Nash equilibrium because no player can improve his or her payoff by changing strategy unilaterally. The solution to the prisoner’s dilemma game is not a Nash equilibrium because players do not end up in the best combination for both. The solution to the prisoner’s dilemma game is not a Nash equilibrium because both players can improve their payoffs by cooperating. The solution to the prisoner’s dilemma game is a Nash equilibrium because it is a noncooperative game in which both players have to expect that the other is purely selfish.arrow_forwardWhat is the difference between collusion and competition? Group of answer choices 1-Competition is when firms operate independently. Collusion is when firms in the oligopoly market structure try to invite new entrants into the market to make it more competitive. 2-Collusion is when firms act together in ways to reduce output, keep prices high, and divide up markets. Competition is when firms operate independently. 3-Competition firms follow the price changes and product changes of the dominant firm in an oligopolistic market. Collusion is when firms operate independently. 4-Collusion is when firms follow the price changes and product changes of the dominant firm in an oligopolistic market.Competition is when firms operate independently.arrow_forward
- Consider the following entry-deterrence game. A potential entrant has two strategies, “Enter” or “Stay Out”. An incumbent firm can either Price Low or Price High, depending on whether they want to try to fight or accommodate the entrant. (The Price Low option could be a limit price, for example). Suppose if the entrant Enters and the incumbent Prices Low, both firms lose $-1M. If the entrant enters and the incumbent Prices High, each firm earns $2M. If the Entrant doesn’t enter, the incumbent earns $4M and the entrant earns $0. a)Using the concept of Nash Equilibrium, what are the predicted strategies and profits? Set up a game box or tree and explain your reasoning. b) Give an example of a different profit outcome that would lead to a different Nash Equilibrium. (From this, you can see that sometimes deterrence is effective and sometimes it isn’t, depending on the profits).arrow_forwardAssume two countries (US and Germany) are facing the decision of whether to participate in the Paris Agreement or not. The following payoff matrix contains the estimated payoffs for both countries for all possible strategies. Germany US Join Not join Join A: (500, 360) B: (100, 200) Not join C: (450, 300) D: (450, 350) What is the dominant strategy for Germany? Joining Not joining Germany does not have a dominant strategyarrow_forwardConsider a situation where two firms, 1 and 2, compete by choosing prices simultaneously. They can either compete (charge a low price) or cooperate (collude, charging a high price). The firms play this competition game repeatedly and indefinitely, using a grim trigger strategy to incentivize cooperation. They use the same interest rate, i , to discount future payoffs. Payoffs are $4,050 when both firms cooperate and $3,600 when they compete. If one firm charge a low price while the other charges a high price, the firm charging the low price gets $7,200, and the other gets zero. Which of the following statements is correct?(a) For any i < 1/7 the firms will cooperate(b) For any i > 1/8 the firms will cooperate(c) For i = 1/9 the firms will be indifferent between cooperating or competing(d) There is no way to sustain cooperation in this scenarioarrow_forward
- We consider the following three-player strategic form game, where Alice's strategies are U, C, and D, and Bob's strategies are L, M, and R, and Carol's strategies are A and B. Carol's strategy consists of choosing which table will be used for the payoffs, Table A or Table B.Table A is below, where for each cell the first number is Alice's payoff, the second number is Bob's payoff and the third number is Carol's payoff.. L M R U 8,11,14 3,13,9 0,5,8 C 9,9,8 8,7,7 6,5,7 D 0,8,12 4,9,2 0,4,8 Table A Table B is below, where again, for each cell, the first number is Alice's payoff, the second number is Bob's payoff and the third number is Carol's payoff.. L M R U 14,1,0 13,2,11 1,3,2 C 0,0,2 7,2,3 14,3,2 D 7,12,11 12,12,0 2,11,2 Table B This game may not have any Nash equilibrium in pure strategies, or it may have one or more equilibria.How many Nash equilibria does this game have?arrow_forwardConsider the following game, called matching pennies, which you are playing with a friend. Each of you has a penny hidden in your hand, facing either heads up or tails up. You know which way the penny is facing in your own hand. On the count of three, you simultaneously show your pennies to each other. If the face-up side of your coin matches your friends, you get to keep both pennies. If they do not match, your friend gets to keep both. a. Who are the players in this game? What are each player’s strategies? b. Construct a payoff matrix for this game. c. Does either player have a dominant strategy? Explain d. Is there a Nash equilibrium? Explain.arrow_forwardTwo firms are competing in an oligopoly and they can elect to either charge a high price or a low price.If they both charge a high price, firm A earns $100 and firm B earns $120.If they both charge a low price, firm A earns $70 and firm B earns $60.If firm A charges a low price and firm B charges a high price, firm A earns $200 and firm B earns $50.If firm B charges a low price and firm A charge a high price, firm A earns $40 and firm B earns $150.What will be the Nash equilibrium outcome, and will there be incentives to collude or cheat? (Hint - use a decision matrix)O a. There is a Nash equilibrium of both firms charging a low price, but there is incentive to collude and charge a high price.O b. There is a Nash equilibrium of both firms charging a low price, and there is no incentive to collude and charge a high price.Oc. There is a Nash equilibrium of both firms charging a high price, but there is incentive to cheat and charge a low price.O d. There is a Nash equilibrium of both…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education