1.(Figure: Payoff Matrix I for Blue Spring and Purple Rain) The figure Payoff Ma

Question

1.(Figure: Payoff Matrix I for Blue Spring and Purple Rain) The figure Payoff Matrix I for Blue Spring and Purple Rain

refers to two producers of bottled water. Each has two strategies available to it: a high price and a low price. The

dominant strategy for Purple Rain is to:
  
a)    always charge a high price.
  
b)    always charge a low price.
  
c)    Purple Rain does not have a dominant strategy.
  
d)    always adopt the same strategy as Blue Spring.

2.(Figure: Prisoners' Dilemma for Thelma and Louise) Look at the Figure Prisoners' Dilemma for Thelma and Louise. Thelma

and Louise are arrested and put in jail for murder. Given the payoff matrix in the figure, the optimal behavior for Thelma

and Louise is for:
  
a)    both Thelma and Louise to confess.
  
b)    neither Thelma nor Louise to confess.
  
c)    Thelma to confess and for Louise not to confess.
  
d)    Louise to confess and for Thelma not to confess.

3. Suppose that each of the only two firms in an industry has the independent choice of advertising its product or not

advertising. If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million

each; and if one advertises while the other does not, the advertiser gets profit of $15 million and the other gets profit

of $2 million. According to game theory, the Nash equilibrium is:
  
a)    one will advertise and the other will not.
  
b)    both will advertise.
  
c)    both may or may not advertise.
  
d)    neither will advertise.

Purple Rain High price Purple Rain'sPurple Rain's Low price profit = profit High Blue p price Spring's lue ,000 Blue Ble $50,000 Spring's profit = $2,000 profit $20,000 CD Purple Rain's Ble $12,000 profit = Purple Rain's profit = profit Low Blue Blue $10,000 Spring's profit = $10,000 price Springs $50,000

Explanation / Answer

1. c. Purple rain doesnot have a dominant strategy.( Purple rain is not following any strategy )

2. b. Neither Thelma nor Louise to confess. (so both of them will only get 5 yers of term)

3. c. Both amy or may not advertise.

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