The wow expert Hand written solution is not allowed Two firms producing the same product agree to collude by restricting their total production to drive up the market pricefor their product and make profits of $18 million each. But if one of the firms restricts output (thereby keeping theagreement) while the other cheats and produces more, the latter makes $20 million while the former makes only $13million. If they both cheat on their agreement, they end up making $15 million in profits each. The payoff matrix of thisgame is shown below (payoffs are displayed in millions of dollars): In this game, a dominant strategy equilibrium is:Group of answer choices (Cheat, Cheat) (Collude, Collude) (Collude, Cheat) (Cheat, Collude) No answer text provided.CCFirm 2ColludeCheatCollude18, 1813, 20Firm 1Cheat20, 1315, 15

In a dominant strategy equilibrium, each player chooses their strategy regardless of the other…

Answered: Two firms producing the same product…

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter15: Strategic Games

Section: Chapter Questions

Problem 15.6IP

See similar textbooks

Similar questions

bok rint An oligopoly producing a homogeneous product is comprised of three firms that act like a cartel. Assume that these three firms have identical cost schedules. Assume also that if any one of these firms sets a price for the product, the other two firms charge the same price. As long as they all charge the same price they will share the market equally; and the quantity demanded of each will be the same. Below is the total-cost schedule of one of these firms and the demand schedule that confronts it when the other firms charge the same price as this firm. Complete the marginal-cost and marginal- revenue schedules facing the firm. erences Mc Graw Hill Output Total cost Marginal cost Price Quantity demanded Marginal revenue 0 1 23456 7 8 $0 180 300 480 720 1,020 1,380 1,800 2,280 Short Anewor LA JUL 26 $780 720 660 600 540 480 420 360 Toolbar navigation (a) What price would be charged, what output would be produced, and what profit would be made by this firm? (b) If the firms…
The payoff matrix below is for two firms, A and B, deciding the quantity of their output levels. What is the dominant strategy of each firm? icrosc Firm B Strategy High output Low output High output 100, 80 0, 125 Firm A Low output 65, 0 40, 65 Both firms produce low levels of output. DO cGill Both firms produce high levels of output. Temp Firm A's dominant strategy is to produce low levels of output, but Firm B does not have a dominant strategy. Order Article O Firm B's dominant strategy is to produce low levels of output, but Firm A does not have a dominant strategy. Neither firm has a dominant strategy. oy 00 halysis
Pictech Pricing High Low High 8, 8 4, 13 Flashfone Pricing Low 13, 4 7,7 For example, the lower-left cell shows that if Flashfone prices low and Pictech prices high, Flashfone will earn a profit of $13 million, and Pictech will earn a profit of $4 million. Assume this is a simultaneous game and that Flashfone and Pictech are both profit-maximizing firms. If Flashfone prices high, Pictech will make more profit if it chooses a v price, and if Flashfone prices low, Pictech will make more profit if it chooses price. price, and if Pictech prices low, Flashfone will make more profit if it chooses If Pictech prices high, Flashfone will make more profit if it chooses a price. a dominant strategy for both Flashfone and Pictech. Considering all of the information given, pricing low If the firms do not collude, what strategies will they end up choosing? O Flashfone will choose a high price, and Pictech will choose a low price. O Both Flashfone and Pictech will choose a high price. O Both…
Bud and Wise are the only two producers of mango Juice. Bud and Wise are trying to figure out how much of mango Juice to produce. They know: ● If they both limit production and produce 10,000 gallons a day, they will make the maximum attainable joint economic profit of $200,000 a day, or $100,000 a day each. • If either firm expands production and produces 20,000 gallons a day while the other limits production and produces 10,000 a day, the one that produces 20,000 gallons will make an economic profit of $150,000 and the other will incur an economic loss of $50,000. • If both expand production and produce 20,000 gallons a day, each firm will make zero economic profit. Find the Nash equilibrium of the game that Bud and Wise play. The Nash equilibrium is for both Bud and Wise to limit production. The Nash equilibrium is for both Bud and Wise to expand production. The Nash equilibrium is for Wise to limit production and for Bud to expand production. The Nash equilibrium is for Bud to…
In 2018, Delta Air Lines said that it was increasing its fares by 4% because its fuel bill jumped by 33% from the previous yoar. Other airines also announced fare increases. Assuming that these firms are oligopolistic and the outcome is a Nash-Coumot equilibrium, why did the prices rise less than in proportion to the firms' cost? Price rose less than the firms' costs in this oligopoly because O A. demand is not perfectly inelastic. O B. consumers are not price sensitive. OC. the firms are price takers. D. air travel has no close substitutes.
Choose the BEST answer. The graph below shows the collusion model of oligopoly. What level of output corresponds to the profit maximizing level of output for the two firms combined? P, MR, and MC at 1/20 B > combined Ⓒ%Q, where one firm maximize profits and splits the market. ⒸQ, where P-MC for the market as a whole. Quantity per month Othere is no efficient solution in the collusion model of oligopoly Q. where the two firms maximize total profit and split the market. MC D combined
Consider a oligopoly with two firms. Each firm has constant marginal cost of 3 dollar per unit and zero fixed costs. Suppose the market demand curve is P = 15-Q, where Q=Q1+Q2 is the sum of the quantities produced by both firms. Suppose each firm can produce either 1, 2, 3, or 4 units. Which of the following is an optimal collusive outcome for the firms? O Each firm produces 2 units. Each firm produces 4 units. O Each firm produces 3 units. O Each firm produces 1 unit.
GoJex and Grav are both considering whether to charge a low price or a high price to their customers. If both firms charge a low price, each firm will make a profit of $5 million. If GoJex charges a low price while Grav charges a high price, GoJex will make a profit of $25 million and Grav will only make a profit of $2 million. On the other hand, if GoJex do not charges a low price while Grav does, GoJex will make a profit of $2 million while Grav will make a profit of $25 million. Finally, if both firms charge a high price, each firm will make a profit of $15 million. a. Use the information above to construct a payoff matrix for GoJex and Grav and What is the dominant strategy for each firm? Explain. b. Based on your answer (point b) above, what is the Nash equilibrium for this game? Explain. c. What is the cooperative (collusion) outcome? Explain
Discuss what can be the expected resultof the firms in the Cournot oligopoly, that is, that can be the expected Nash Equilibrium solution fora household cleaning appliance firm.
Consider a "punishment" variation of the two-firm oligopoly situation shown in the figure below. Suppose that if one firm sets a low price while the other sets a high price, then the firm setting the high price can fine the firm setting the low price. Suppose that whenever a fine is imposed, X dollars are taken from the low-price firm and given to the high-price firm. RareAir's price strategy High Low $12 $15 A B High $12 $6 $6 $8 Low $15 $8 Instructions: Enter your answer as a whole number. What is the smallest amount that the fine X can be such that both firms will want to always set the high price? $O million Uptown's price strategy
Question Suppose Coca Cola and PepsiCo are producing a new, healthy version of Coke and Pepsi. They are trying to figure out how much of this new soda to produce. They know: (i) If they both produce 10,000 liters a day, they will make the maximum attainable joint economic profit of $200,000 a day, or $100,000 a day each. (ii) If either firm produces 20,000 liters a day while the other produces 10,000 a day, the one that produces 20,000 liters will make an economic profit of $150,000 and the other will incur an economic loss of $50,000. (iii) If both produce 20,000 liters a day, each firm will make zero economic profit. (a) Describe the payoff matrix for the game that Coca Cola and PepsiCo must play. (b) Find the Nash equilibrium of the game that Coca Cola and PepsiCo play.
8. Two firms, the only firms in the market, sell the same product and have the same marginal cost. They realise they would be better off if they didn't compete with each other. They enter an alternating offers bargaining game to decide how they will divide the monopoly profit, n. They have three periods to come to an agreement. If no agreement is reached after three periods, the firms will compete simultaneously in prices. The firms toss a coin to decide who makes the first offer in the bargaining game. Firm 1 wins and decides to go first. Each firm has a discount factor o. a) Draw the game tree. b) What is the subgame perfect equilibrium when 8 = 0.5? c) What is the equilibrium payoff for each firm? d) Was Firm 1 wise to opt to make the first offer? Explain your answer. %3D

SEE MORE QUESTIONS

Recommended textbooks for you

Managerial Economics: A Problem Solving Approach

Economics

ISBN:

9781337106665

Author:

Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:

Cengage Learning

Exploring Economics

Economics

ISBN:

9781544336329

Author:

Robert L. Sexton

Publisher:

SAGE Publications, Inc

Managerial Economics: A Problem Solving Approach

Economics

ISBN:

9781337106665

Author:

Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:

Cengage Learning

Exploring Economics

Economics

ISBN:

9781544336329

Author:

Robert L. Sexton

Publisher:

SAGE Publications, Inc

SEE MORE TEXTBOOKS