Questions 13-14 refer to the game theory / payoff matrix below) Firm Y High Low
ID: 1122922 • Letter: Q
Question
Questions 13-14 refer to the game theory / payoff matrix below) Firm Y High Low High $45m (Firm Y) $50m (Firm X) $35m (Firm Y) (Frim X) Firm X $40m $10m $15m $20m (Firm X) (Firm Y) (Firm X) (Firm Y) Low 14. This game theory payoff matrix shows the possible profit for two firms deciding to price high or price low. Which of the following statements is correct? a. Firm X's dominant strategy is to price low b. Frim X's dominant strategy is to price high c. Firm 's dominant strategy is to price low d. Frim Y's dominant strategy is to price high e. Neither firm has a dominant strategy 15. This game theory payoff matrix shows the possible profit for two firms deciding to price high 6 or price low. Assume each firm knows the all the information in the payoff matrix. All of the following statements are correct except a. If the two firms collude, Firm X will price high and Firm Y will price high b. If Firm X prices low, then Firm Y will price low c. If Firm Y prices high, Firm X will follow and price high d. The game will reach a Nash equilibrium with both pricing high e. If Firm Y prices high, Firm X will price low Question 15 refers to the game theory/payoff matrix below)Explanation / Answer
14) Option b is correct
When Firm Y chooses high price, Firm X would maximize payoff when it also chooses to price high. When Firm Y chooses low price, Firm X would again maximize payoff when chooses to price high.
Firm X has a dominant strategy - price high.
(Firm Y does not have a dominant strategy)
15) Option e is correct
Firm X will never price low as it has a dominant strategy i.e. price high.
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