MINDTAP Homework (Ch 17) Due today a17PMPST 6. Using a payofi nmatrix to determi
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MINDTAP Homework (Ch 17) Due today a17PMPST 6. Using a payofi nmatrix to determine the equilibrium outcome Sagpose there are only two firms that sel tablets: Pad aria and Capturesque. The foloing payoff matrix shows the ped' (in millons of dollars) each company will earn, depending on whether it sets a high or low price for its tablets High High 9.9 2,13 Padmanie Pricing For example, the lower-left cell shows that if Padmania prices low and Capturesque prices high, Padmania will ean a profit of $19 milion, and Capturesque will ean a profit of $2 million. Assume this is a simultaneous game and that Padmania and Capturesque are both prolfit-maximizing firms - price, and r Paomania prices low, capturesue will make more If Padmania prices high, Capturesq e wil make more proftF it dooses a- proft If it choosesprice make more proft/ it deoses a- price, and if Capturesque prices low, Padmania wil make more If Capturesgue prices high, Padmania profit if it chooses a price. C idering al of the information given, pridng low-- a dominant strategy for both Padmania and Caot resque. 8Explanation / Answer
(a) If Padmania prices High, Capturesque makes more profit if it chooses Low price, and if Padmania prices Low, Capturesque makes more profit if it chooses Low price.
(b) If Capturesque prices High, Padmania makes more profit if it chooses Low price, and if Capturesque Low, Padmania makes more profit if it chooses Low price.
(c) Pricing low is a dominant strategy for both Padmania and Captureseque.
(d) If they do not collude,
- Both Padmania and Captureseque. will choose a Low price.
(e) True
If instead they collude, they could maximize joint profit by both pricing High and payoff would have increased.
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