Exploring Economics
8th Edition
ISBN: 9781544336329
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Chapter 15, Problem 15P
To determine
To find:
The dominant strategy for the given payoff matrix.
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A total of n ≥ 2 companies are considering entry into a new market. The cost of entry is 30. If only one company enters, then its gross profit is 200. If more than one company enters, then each entrant earns a gross profit of 40. The payoff to a company that enters is its gross profit minus its entry cost, while the payoff to a company that does not enter is 60. Find a symmetric Nash equilibrium in mixed strategies.
Boeing and Airbus have to decide whether to invest in the development of a Super Jumbo for long distance travel;
if they both develop successfully the new plane, their profits will drop by 50 millions a year;
if only one develop the Super Jumbo, it will make 80 millions a year in additional profits, whereas the profits of the other firm will drop by 30 millions a year;
if no firm develops the plane, nothing changes. Based on giveninformation, construct Matrix Representation of Boeing and Airbus Companies game
a Firm A and Firm B decide to launch their new products in the market. Each firm can choose to either sell the product at a high price (H) or a low price (L). The estimated payoff table is as follows:
Firm B
L
H
Firm A
L
(250, 150)
(280, 130)
H
(140, 180)
(270, 190)
(Firm A's payoff is given before the comma, and Firm B's payoff is given after the comma.)
i What are the dominant strategies (if any) for Firm A and Firm B respectively?
ii What is the Nash equilibrium outcome, if any? Explain. (
iii If Firm A can decide on what strategy to use first, what will be the Nash equilibrium (if any) of this sequential game? Explain with the aid of a tree diagram.
b Explain why the market of health insurance is less efficient with the presence of asymmetric information. (Assume the insured knows more about his/her health condition than the insurance provider.)
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