Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 14, Problem 10RQ
To determine
Nash equilibrium.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Teletronics reported record profits of $100,000 last year and is on track to exceed those profits this year. Teletronics competes in a very competitive market where many of the firms are merging in an attempt to gain competitive advantages. Currently, the company’s top manager is compensated with a fixed salary that does not include any performance bonuses. Explain why this manager might nonetheless have a strong incentive to maximize the firm’s profits. (LO4, LO5)
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.
Newfoundland’s fishing industry has recently declined sharply due to overfish- ing, even though fishing companies were supposedly bound by a quota agree- ment. If all fishermen had abided by the agreement, yields could have been maintained at high levels. LO4
Model this situation as a prisoner’s dilemma in which the players are Company A and Company B and the strategies are to keep the quota and break the quota. Include appropriate payoffs in the matrix. Explain why overfishing is inevitable in the absence of effective enforcement of the quota agreement.
Provide another environmental example of a prisoner’s dilemma.
In many potential prisoner’s dilemmas, a way out of the dilemma for a would-be cooperator is to make reliable character judgments about the trustworthiness of potential partners. Explain why this solution is not avail-
able in many situations involving degradation of the environment.
Chapter 14 Solutions
Economics (Irwin Economics)
Ch. 14.2 - Prob. 1QQCh. 14.2 - The D2e segment of the demand curve D2eD1 graph...Ch. 14.2 - Prob. 3QQCh. 14.2 - Prob. 4QQCh. 14 - Prob. 1DQCh. 14 - Prob. 2DQCh. 14 - Prob. 3DQCh. 14 - Prob. 4DQCh. 14 - Prob. 5DQCh. 14 - Prob. 6DQ
Ch. 14 - Prob. 7DQCh. 14 - Prob. 8DQCh. 14 - Prob. 9DQCh. 14 - Prob. 10DQCh. 14 - Prob. 11DQCh. 14 - Prob. 12DQCh. 14 - Prob. 13DQCh. 14 - Prob. 14DQCh. 14 - Prob. 1RQCh. 14 - Prob. 2RQCh. 14 - Prob. 3RQCh. 14 - Prob. 4RQCh. 14 - Prob. 5RQCh. 14 - Prob. 6RQCh. 14 - Prob. 7RQCh. 14 - Prob. 8RQCh. 14 - Prob. 9RQCh. 14 - Prob. 10RQCh. 14 - Prob. 1PCh. 14 - Prob. 2PCh. 14 - Prob. 3P
Knowledge Booster
Similar questions
- Suppose that there are two firms in a market, firm 1 and firm 2. The marketis declining in size. The game starts in period 0, and the firms can compete in periods 0, 1,2, 3, ... (i.e., indefinitely) if they so choose. Duopoly profits in period t for firm 1 are equalto 105 −10t, and they are 10.5 −t for firm 2. Monopoly profits (those if a firm is the onlyone left in the market) are 510 −25t for firm 1 and 51 −2t for firm 2. At the start of eachperiod, each firm must decide either to “stay in” or “exit” if it is still active (they do sosimultaneously if both are still active). Once a firm exits, it is out of the market forever andearns zero in each period thereafter. Firms maximize their (undiscounted) sum of profits.What is this game’s subgame perfect Nash equilibrium?arrow_forward3. Describe some interaction your company has with another entity (firms producing complementary or substitute products, upstream sup- pliers, or downstream customers), or between internal divisions within your firm that can be described as a sequential or simultaneous game. Diagram the strategies, players, and compute payoffs as best you can. Compute the Nash equilibria. What can you do to change the rules of the game to your advantage? Compute the profit consequences of your advice.arrow_forwardSuppose Toyota and Honda must decide whether to make a new kind of side-impact airbags standard equipment on all models. Side impact-airbags raise the price of each automobile by $1000. If both firms make side-impact airbags standard equipment, each company will earn profits of $2.5 billion. If neither company adopts the side-impact airbag technology, each company will earn $1 billion (due to lost sales to other automakers). If one company adopts the technology as standard equipment and the other does not, the adopting company will earn a profit of $3 billion and the other company will lose $1.5 billion. If you were a decision maker at Honda, would you make side-impact airbags standard equipment?arrow_forward
- Is the game shown by Figure 11.3 in the chapter (not this appendix) a zero-sum game or is it a positive-sum game? How can you tell? Are there dominant strategies in this game? If so, what are they? What cell represents a Nash equilibrium and why? Explain why it is so difficult for Uptown and RareAir to achieve and maintain a more favorable cell than the Nash equilibrium in this single-period pricing game.arrow_forwardWhat is the distinguishing characteristics of oligopoly in relation to the other forms of the other market organizations? What is its significance? In which sector of the USA economy is oligopoly most relevant?An oligopolistic firm from the telecommunication industry in USA follows demand-and-cost situation in 2009.Price in USD($) Quantity Total cost20 7 3619 8 4518 9 5417 10 6316 11 7215 12 81i. How much output should the oligopolistic produce? What price should it charge and what is the maximum profit can this firm earns?arrow_forward11 21. Imagine an N firm oligopoly for "nominally differentiated" goods. That is, each of the N firms produces a product that "looks" different from the products of its competitors, but that "really" isn't any different. However, each firm is able to fool some of the buying public. Specifically, each of the N firms (which are identical and have zero marginal cost of production) has a captive market -consumers who will buy only from that firm. The demand generated by each of these captive markets is given by the demand function Pn A- Xn , where Xn is the amount supplied to this captive market and Pn is the price of the production of firm n. There is also a group of intelligent consumers who realize that the products are really undifferentiated. These…arrow_forward
- Next, explain how it can be applied to the decisions that have to be made in an oligopoly. What specifically is the decision to be made by each seller in an oligopoly? How does each possible outcome in the prisoners' dilemma map into an outcome in an oligopoly? What do you think each seller's dominant strategy will be? Examine and discuss how the role of communication, specifically the lack of communication, can lead to an outcome that is worse for the players. (Of course, it is against U.S. law for the sellers to conspire to make the market less competitive!) Can you think of other examples of how the prisoners' dilemma could be applied to business decision making? Discuss any other applications of a prisoners' dilemma game you find to be interesting, whether from the text or one you can think of on your own.arrow_forwardSuppose we have another firm known as the Sanda Corporation which makes a product known as "Delgados". Suppose that its FC=$2,000 and its TC=$5,000 and its AVC=$48. What is the ATC? O $20.50 O $70 O $80 O $100 O Not enough informationarrow_forward5 Suppose two players play one of the two normal-form games shown in Figure 1. L U 0,-1 D 2,4 R 2,0 6,0 L U | 4,-1 D 2,-2 R 2,0Now suppose that Player 2 knows which game is being played, but Player 1 does not. Find the pure strategy Bayesian Nash equilibrium of this game.arrow_forward
- Question 3 options: Now consider the same industry but assume that two firms with the same cost function c ( q i ) = 2 ∗ q i f o r i ∈ { 1 , 2 } are active in this market. What is the price that realizes when they set prices in a simultanous move game (ie they play Bertrand). Assume now that the cost of the second firm is instead c ( q 2 ) = 5 ∗ q 2 What is the equilibrium price if they again play Bertrand? (round to the nearest whole number)arrow_forward4 Consider an extensive game where player 1 starts with choosing of two actions, A or B. Player 2 observes player 1’s move and makes her move; if the move by player 1 is A, then player 2 can take three actions, X, Y or Z, if the move by player 1 is B, then player 2 can take of of two actions, U or V. Write down all teminal histories, proper subhistories, the player function and strategies of players in this game.arrow_forwardGame Theory a) Consider the following game represented by the game tree below. If you observe Blue Bank playing medium and Green Bank playing bottom, would you be surprised by their choices? Carefully explain why or why not. b) Now assume that Blue and Green Banks play the game with the same actions and payoffs as in a) but they make their choices simultaneously. What is the payoff matrix for this new game? What do you predict will happen in the game? Explain. c) Assume that the game from part a) is played five times, i.e. Blue and Green Banks play a repeated game with the stage game described in a). What do you predict will happen in the game? Explain.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