Exploring Economics
8th Edition
ISBN: 9781544336329
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
expand_more
expand_more
format_list_bulleted
Question
Chapter 15, Problem 16P
To determine
To find:
The probability of everyone in the class getting an A in the course.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Two competing firms must choose their quantity of production simultaneously. Each firm can choose either a High quantity of 3 or a Low quantity of 2. The price for both firms is 9-Q, where Q is the sum of both their quantities. Costs are zero; the profit is simply price times quantity. For example, if firm 1 chooses High and firm 2 chooses Low, then price is 9-(3+2)=4; payoff for firm 1 is 12 while payoff for firm 2 is 8.
What is the unique Nash equilibrium?
(Firm 1's strategy will be written before firm 2's.)
Consider two oligopolists, each choosing between a “high” and a “low” level of production. Given their choices of how much to produce, their profits will be as follows: Explain how firm B will reason that it makes sense to produce the high amount, regardless of what firm A chooses. Then explain how firm A will reason that it makes sense to produce the high amount, regardless of what firm B chooses. How might collusion assist the two firms in this case?
) The following provides information for a game.
Firm A
Firm B
Low Price
High Price
Low Price
(2, 2)
(10, −8)
High Price
(−8, 10)
(15, 15)
Suppose the game is infinitely repeated, and the interest rate is 10 percent. The firms are allowed to collude and make joint decisions. 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with a trigger strategy that states that if any firm cheats (by charging a low price), then the agreement is no longer valid and each firm may make their own independent decisions.
Will the trigger strategy be effective in implementing the collusive agreement? Please explain and show all necessary calculations
Knowledge Booster
Similar questions
- Suppose that Flashfry and Warmbreeze are the only two firms in a hypothetical market that produce and sell air fryers. The following payoff matrix gives profit scenarios for each company (in millions of dollars), depending on whether it chooses to set a high or low price for fryers. Warmbreeze Pricing High Low Flashfry Pricing High 11, 11 2, 15 Low 15, 2 8, 8 For example, the lower-left cell shows that if Flashfry prices low and Warmbreeze prices high, Flashfry will earn a profit of $15 million, and Warmbreeze will earn a profit of $2 million. Assume this is a simultaneous game and that Flashfry and Warmbreeze are both profit-maximizing firms. If Flashfry prices high, Warmbreeze will make more profit if it chooses a price, and if Flashfry prices low, Warmbreeze will make more profit if it chooses a price. If Warmbreeze prices high, Flashfry will make more profit if it chooses a price, and if Warmbreeze prices low, Flashfry will make more profit if…arrow_forwardAmerican Airlines and Braniff Airways are the two airlines operating flights from your region. Suppose that each company can charge either a high price for tickets or a low price. First, American Airlines will choose the price level. Following this, Braniff Airways will observe its competitor’s decision and choose the price level for its tickets. If both of the companies choose High, they earn $25,000 each. If they both choose Low, they earn $18,000 each. If the companies choose different levels of prices, the one choosing the high price will earn $15,000 and the one choosing Low will earn $30,000. a) Draw the game three. b) Solve the game by using backwards induction. c) If Braniff Airlines makes a promise to choose High if American Airlines chooses High, should American Airlines trust this promise? Explain.arrow_forwardThis is a Microeconomics problem. Two firms A and B operating in the same market must choose between a collude price and a cheat price. Answer the following questions in order. (a) Does Firm A have a dominant strategy? Explain your answer. (b) Does Firm B have a dominant strategy? Explain your answer. (c) Is there an equilibrium solution to the above game? (d) Is this equilibrium solution to the game the most "ideal" outcome for the players? Explain clearly why or why not.arrow_forward
- Consider a "Betrand price competition model" between two profit maximizing widget producers say A and B. The marginal cost of producing a widget is 4 for each producer. Each widget producer has a capacity constraint to produce only 5 widgets. There are 8 identical individuals who demand 1 widget only, and individuals value each widget at 6. If the firms are maximizing profits, then which of the following statement is true: a) Firm A and Firm B will charge 4 b) Firm A and Firm B will charge 6 c) Firm A and Firm B will charge greater than or equal to 5 d) None of the options are correct. Explain clearly.arrow_forwardYou and a classmate are assigned a project on which you will receive one combined grade. You each want to receive a good grade, but you also want to avoid hard work. In particular, here is the situation: • If both of you work hard, you both get an A, which gives each of you 40 units of happiness. • If only one of you works hard, you both get a B, which gives each of you 30 units of happiness. • If neither of you works hard, you both get a D, which gives each of you 10 units of happiness. • Working hard costs 25 units of happiness. Complete the following payoff matrix given the previous information. In each cell, your classmate's payoff is on the left and yours is on the right. Your Decision Work Shirk Classmate's Decision Work , , Shirk , , The likely outcome is that your classmate and you . If you get this classmate as your partner on a series of projects throughout the year, rather than only once, you are…arrow_forwardYou and a classmate are assigned a project on which you will receive one combined grade. (You each want to receive a good grade, but you also want to avoid hard work. In particular, here is the situation:• If both of you work hard, you both get an A, which gives each of you 40 units of happiness.• If only one of you works hard, you both get a B, which gives each of you 30 units of happiness.• If neither of you works hard, you both get a D, which gives each of you 10 units of happiness.• Working hard costs 25 units of happiness. a. Fill in the payoffs in the following decision box: REFER IMAGE b. What is the likely outcome? Explain your answer.c. If you get this classmate as your partner on a series of projects throughout the year, rather than only once, how might that change the outcome you predicted in part (b)?d. Another classmate cares more about good grades: She gets 50 units of happiness for a B and 80 units of happiness for an A. If this classmate were your partner (but your…arrow_forward
- You and a classmate are assigned a project on which you will receive one combined grade. (You each want to receive a good grade, but you also want to avoid hard work. In particular, here is the situation:• If both of you work hard, you both get an A, which gives each of you 40 units of happiness.• If only one of you works hard, you both get a B, which gives each of you 30 units of happiness.• If neither of you works hard, you both get a D, which gives each of you 10 units of happiness.• Working hard costs 25 units of happiness.a. Fill in the payoffs in the following decision box: b. What is the likely outcome? Explain your answer.c. If you get this classmate as your partner on a series of projects throughout the year, rather than only once, how might that change the outcome you predicted in part (b)?d. Another classmate cares more about good grades: She gets 50 units of happiness for a B and 80 units of happiness for an A. If this classmate were your partner (but your preferences…arrow_forwardNash equilibrium can be defined as the competitive outcome where _____A. all firms set prices equal to average cost and all firms make economic profit.B. each firm sets a price equal to marginal cost and each firm makeseconomic profit.C. each firm sets a price higher than marginal cost and each firm makeseconomic profit.D. each firm sets a price lower than marginal cost and each firm makeseconomic profit.E. firms set a price lower than average cost and all firms make economic profit.arrow_forwardSuppose two companies, Apples and Dell, are a competing duopoly. If both companies charge the high price, they each earn $700 million in economic profit. If both companies charge the low price, they each earn $500 million in economic profit. If one company charges a high price and the other a low price, the company charging the higher price earns $450 million in economic profit and the company charging the lower price earns $800 million in economic profit. 1. What is the Nash equilibrium? Select all possible answers from the answer list. 2. Thinking back to your answer for the Nash equilibrium, can firms do better than the outcome you identified? Explain.arrow_forward
- Sometimes oligopolies in the same industry are very different in size. Suppose we have a duopoly where one firm (Firm A) is large and the other firm (Firm B) is small, as shown in the prisoner’s dilemma box in Table 5. Firm B colludes with Firm A Firm B cheats by selling more output Firm A colludes with Firm B A gets $1,000, B gets $100 A gets $800, B gets $200 Firm A cheats by selling more output A gets $1,050, B gets $50 A gets $500, B gets $20 Assuming that the payoffs are known to both firms, what is the likely outcome in this case?arrow_forwardSuppose Toyota and Honda must decide whether to make a new breed of side-impact airbags standard equipment on all models. Side-impact airbags raise the price of each automobile by $1,000. If both firms make side-impact airbags standard equipment, each company will earn profits of $0.5 billion. If neither company adopts the side-impact airbag technology, each company will earn $1.5 billion. If one company adopts the technology as standard equipment and the other does not, the adopting company will earn a profit of $2 billion and the other company will earn $-1 billion.If you were a decision maker at Honda, would you make side-impact airbags standard equipment?multiple choice 1 There is not enough information to answer the question. No Yes If Toyota and Honda were able to cooperate, would you expect this same outcome?multiple choice 2 Yes No There is not enough information to answer the question.arrow_forwardSuppose that two firms, Lucky Bird and Full Coop, are the only sellers of seitan buffalo wings in some hypothetical market. The following payoff matrix gives the profit (in millions of dollars) earned by each company depending on whether or not it chooses to advertise: Full Coop Advertise Doesn't Advertise Lucky Bird Advertise 9, 9 15, 3 Doesn't Advertise 3, 15 11, 11 For example, the lower left cell of the matrix shows that if Full Coop advertises and Lucky Bird does not advertise, Full Coop will make a profit of $15 million, and Lucky Bird will make a profit of $3 million. Assume this is a simultaneous game and that Lucky Bird and Full Coop are both profit-maximizing firms. If Lucky Bird chooses to advertise, it will earn a profit of million if Full Coop advertises and a profit of million if Full Coop does not advertise. If Lucky Bird chooses not to advertise, it will earn a profit of million if Full Coop advertises and a profit of million if…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc