6. Using a payoff matrix to determine the equillbrlum outcome Suppose there are
ID: 1118695 • Letter: 6
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6. Using a payoff matrix to determine the equillbrlum outcome Suppose there are only two firms that sell smartphones, Flashfone and Pictech. The payoff matrix that follows shows the profit (in millions of dollars) each company will earn, depending on whether it sets a high or low price for its phones. For example, the lower-left cell shows that if Flashfone prices low and Pictech prices high, Flashfone will earn a profit of $9 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 Pictech High PriceLow Price High Price 7, 7 4, 9 Flashfone Low Price 9, 4 6, 6 If Flashfone prices high, Pictech will make more profit if it chooses a Pictech will make more profit if it chooses a price, and if Flashfone prices low price. If Pictech prices high, Flashfone will make more profit if it chooses a Flashfone will make more profit if it chooses a price, and if Pictech prices low, price. Considering all of the information given, pricing high Pictech. a dominant strategy for both Flashfone and If the firms do not collude, what strategies will they end up choosing? O Flashfone will choose a low price and Pictech will choose a high price 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 Flashfone and Pictech will choose a low price True or False: The game between Flashfone and Pictech is an example of the Prisoners' Dilemma. O False O TrueExplanation / Answer
a. Low price.
To earn a profit of $9 rather than choosing high price and earning$7.
b. Low price.
To earn a profit of $4 rather than choosing high price and earning $6.
c. Low price.
To earn a profit of $9 rather than choosing high price and earning $7.
d. Low price.
To earn a profit of $6 rather than choosing high price and earning $4.
e. IS NOT.
This is so because the dominant strategy is pricing low by both the firms.
f. Option D is correct.
This is so because the dominant strategy is to charge low price by both the firms.
g. True.
This is so because both are trying to maximise their own self interes in the form of earning higher profits, without colluding.
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