The payoff matrix below shows the payoffs for two coffee manufacturers, Cambridg

Question

The payoff matrix below shows the payoffs for two coffee manufacturers, Cambridge and Greystone, which are deciding whether to advertise. The blue payoffs show Cambridge's profit for different strategies selected by each firm. The orange payoffs show Greystone's profit. For example, if Cambridge advertises and Greystone does not advertise, Cambridge's payoff is 10,000 euros and Greystone's payoff is 3,000 euros. Consider this a one-shot game; that is, they interact only once and never again.

[img]http://imgur.com/xfr5f.png[/img]

1. Suppose that it is legal to write a binding contract on what each coffee manufacturer will do. What is the cooperative solution to this game that the firms would outline in their contract?

A. Cambridge does not advertise, but Greystone advertises.
B. Cambridge advertises, and Greystone advertises.
C. Cambridge does not advertise, and Greystone does not advertise.
D. Cambridge advertises, but Greystone does not advertise.


2. Does Greystone have a dominant strategy?

A. Yes, Greystone's dominant strategy is NOT to advertise.
B. Yes, Greystone's dominant strategy is to advertise.
C. No.


3. Does Cambridge have a dominant strategy?

A. Yes, Cambridge's dominant strategy is to advertise.
B. Yes, Cambridge's dominant strategy is NOT to advertise.
C. No.


4. What is the Nash equilibrium in this game?

A. Cambridge advertises, and Greystone advertises.
B. Cambridge advertises, but Greystone does not advertise.
C. Cambridge does not advertise, but Greystone advertises.
D. Cambridge does not advertise, and Greystone does not advertise.

Explanation / Answer

I can't figure out the payoff table, but if this is your typical prisoners' dilemna cooperate, not cooperate game, the cooperative solution is for them to both advertise. However, the dominant strategy for both is to not advertise, so the Nash equilibrium is for neither of them to advertise. In other words 1.1 D 1.2 A 1.3 A 1.4 A

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