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Respond to the question: Payoff Matrix?

 04/29/2001 11:25 AM by Rodrigo; payoff matrix
Yes, it seems to be a simultaneous game. You have two players: A and B. Each player has two actions: R (reduce price) and S (same price). Write a 2x2 matrix, where rows represent A's actions and columns represent B's actions. The

 04/29/2001 06:25 AM by Brandon;
Hi! I'll try and guide you here if I can.... From your question, it isn't clear if it's a sequential game or a simultaneous game. You've 2 players and 2 strategies (reduce price; don't reduce price). This is if it's a simultaneous [View full text and thread]

 04/29/2001 06:25 AM by Brandon;
Hi! I'll try and guide you here if I can.... From your question, it isn't clear if it's a sequential game or a simultaneous game. You've 2 players and 2 strategies (reduce price; don't reduce price). This is if it's a simultaneous [View full text and thread]

 04/29/2001 04:41 AM by name withheld; Payoff Matrix
This is probably a very elementary question regarding economics but I am taking an internet class and just cannot comprehend this chapter. Here are the questions that I am trying to answer. I am not asking for an answer. I am looking for some guidance on where to start. Thank you.

Two firms can either reduce their prices or keep them at the present level. If firm A cuts price, it will earn \$10 million in profit if firm B also cuts price, and \$20 million if firm B does not change its price. If firm A makes no price changes, it will earn \$0 if firm B reduces price and \$5 million if firm B makes no price change. The outcomes are the same for firm B as for firm A.
a) Develop a payoff matrix for this game.
b) Does the game have a Nash equilibrium? If so, why?
c) Given your answer to (b) above, how much will each firm earn in profits?
d) Does either firm have a dominant strategy? Explain.

7. Within ologopolistic industries we very often observe that prices remain constant over long periods of time. This appears to be true even when the costs of production change. Using an economic model, explain how changes in production costs can result in no change in price.

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