*Easy* 6. Using a payoff matrix to determine the equilibrium outcome Suppose the
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*Easy* 6. Using a payoff matrix to determine the equilibrium outcome
Suppose there are only two firms that sell tablets: Padmania and Capturesque. The following payoff matrix shows the profit (in millions of dollars) each company will earn, depending on whether it sets a high or low price for its tablets.
Capturesque Pricing High 9, 9 14, 3 High 3, 14 Padmania Pricing Low For example, the lower-left cell shows that if Padmania prices low and Capturesque prices high, Padmania will earn a profit of $14 million, and Capturesque will earn a profit of $3 million. Assume this is a simultaneous game and that Padmania and Capturesque are both profit-maximizing firms. high/low If Padmania prices high, Capturesque will make more profit if it chooses a profit if it chooses a price, and if Padmania prices low, Capturesque will make more price high/low high/low If Capturesque prices high, Padmania will make more profit if it chooses a profit if it chooses a price, and if Capturesque prices low, Padmania will make more price high/low is is not Considering all of the information given, pricing high a dominant strategy for both Padmania and Capturesque If the firms do not collude, what strategies will they end up choosing? O Both Padmania and Capturesque will choose a low price Padmania will choose a low price, and Capturesque will choose a high price O Padmania will choose a high price, and Capturesque will choose a low price O Both Padmania and Capturesque will choose a high price True or False: The game between Padmania and Capturesque is an example of the prisoners' dilemma rue O FalseExplanation / Answer
Answer : If Padmania price high, Capturesque will make more profit if it chooses a Low price ,because when Capture low price and earn $14 million where as If Padmania price is low, capturesque will make more profit, if it chooses a Low priceand earn $7 million.
If Capturesques price is high, Padmania will make profit if it chooses a Low price and earns maximum profit of $14 million and If capturesques price is low, Padamina will choose a Low price strategy.
Pricing high is a dominat strategy for both Padmania and capturesque . A strategy in which both earn maximum as compare to other in same time period.
If the firm do not collude than both padmania and capturesque will choosed a higher price and earns maximum profit and no one can suffered from this strategy for time being period.
True, this game is an example of Prisoner dilemma because in which two players have outcome in which both have benefited from the game.
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