Complete the following payoff matrix using the information just given. (Note: Last Chance Café and Desolate Diner are both profit-maximizing firms.) Last Chance Café Cleans Up Doesn't Clean Up $ $ Cleans Up $ $ Desolate Diner $ $ Doesn't Clean Up $ $ If Last Chance Café and Desolate Diner decide to collude, the outcome of this game is as follows: Last Chance Café Diner and Desolate If both restaurants decide to cheat and behave noncooperatively, the outcome reflecting the unique Nash equilibrium of this game is as follows: Last Chance Café , and Desolate Diner
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- Home Depot and Lowe's are in a price war on refrigerators. Refrigerators at Home Depot cost $1,000 with a price matching guarantee of a 10% rebate on the price difference with Lowe's, whose refrigerators cost $800. Is this price matching guarantee with a 10% rebate beneficial to the consumer? No, eventually both stores will offer the price matching with rebate and post the price of refrigerators at $1,000, the High Price. Yes, consumers will be able to buy their refrigerators at Home Depot for $780. No, both Lowe's and Home Depot will stop selling refrigerators. O Yes, consumers will be able to buy refrigerators at either store at the Low Price of $800, the lower posted price.Exercise 6.4. Suppose there are only two companies (1 and 2) that fix flat tyres in the local market and compete in a duopoly of Cournot. The two companies repair punctures identically, so consumers will not care about repairing the puncture in company 1 or 2. The inverse demand curve for this market is: P=100-2Q, where Q is the total number of punctures repaired per day by the two companies, that is: Q=q1+q2. The marginal cost of repairing a flat tyre for company 1 is 12 euros, while for company 2 it is 20 euros. We will assume that neither company has fixed costs. a) Get the profit functions of each of the companies based on q1 and q2. b) Obtain the reaction curves of each of the companies. c) How many punctures a day will each company repair in the Cournot equilibrium? d) What will be the market price of repairing a puncture? e) What profit will each company obtain in a day? f) Show with graphs.Exercise 6.4. Suppose there are only two companies (1 and 2) that fix flat tyres in the local market and compete in a duopoly of Cournot. The two companies repair punctures identically, so consumers will not care about repairing the puncture in company 1 or 2. The inverse demand curve for this market is: P=100-2Q, where Q is the total number of punctures repaired per day by the two companies, that is: Q=q1+q2. The marginal cost of repairing a flat tyre for company 1 is 12 euros, while for company 2 it is 20 euros. We will assume that neither company has fixed costs. a) Suppose that this market is a Stackelberg oligopoly and that company 1 is the first to decide how many punctures to repair each day. How many punctures a day will each company repair? What will be the market price of repairing a puncture? How much profit will each company make per day? b)Suppose now that the two firms, instead of competing in quantities, compete on prices according to Bertrand's model. Determine what the…
- JetBlue and Delta are the only two major airlines with regularly scheduled service between New York and Nantucket. There are 900 potential passengers every week, each of whom is willing to pay up to $400 for a ticket. Since the two airlines provide an essentially identical (bad) service, customers simply prefer to buy from the cheaper one. (If they charge the same price, then they will split the market equally.) Each airline can transport at most 1200 passengers each week. You can safely assume that each airline spends literal peanuts (i.e., zero) serving passengers; however, each passenger displaces air cargo that is worth $160 in profits to the carriers. Suppose that each airline takes a short-run perspective and only wants to maximize each week’s profits, and that neither one would consider shutting down the route in the foreseeable future. a) What is the appropriate economic model to study price competition in this market, and why? b) If you use Nash equilibrium to make a…JetBlue and Delta are the only two major airlines with regularly scheduled service between New York and Nantucket. There are 900 potential passengers every week, each of whom is willing to pay up to $400 for a ticket. Since the two airlines provide an essentially identical (bad) service, customers simply prefer to buy from the cheaper one. (If they charge the same price, then they will split the market equally.) Each airline can transport at most 1200 passengers each week. You can safely assume that each airline spends literal peanuts (i.e., zero) serving passengers; however, each passenger displaces air cargo that is worth $160 in profits to the carriers. Suppose that each airline takes a short-run perspective and only wants to maximize each week's profits, and that neither one would consider shutting down the route in the foreseeable future. (a) What is the appropriate economic model to study price competition in this market? (b) If you use Nash equilibrium to make a prediction, what…JetBlue and Delta are the only two major airlines with regularly scheduled service between New York and Nantucket. There are 900 potential passengers every week, each of whom is willing to pay up to $400 for a ticket. Since the two airlines provide an essentially identical (bad) service, customers simply prefer to buy from the cheaper one. (If they charge the same price, then they will split the market equally.) Each airline can transport at most 1200 passengers each week. You can safely assume that each airline spends literal peanuts (i.e., zero) serving passengers; however, each passenger displaces air cargo that is worth $160 in profits to the carriers. Suppose that each airline takes a short-run perspective and only wants to maximize each week's profits, and that neither one would consider shutting down the route in the foreseeable future. (a) What is the appropriate economic model to study price competition in this market? (b) If you use Nash equilibrium to make a prediction, what…
- Consider a remote town in which two restaurants, All-You-Can-Eat Café and GoodGrub Diner, operate in a duopoly. Both restaurants disregard health and safety regulations, but they continue to have customers because they are the only restaurants within 80 miles of town. Both restaurants know that if they clean up, they will attract more customers, but this also means that they will have to pay workers to do the cleaning. If neither restaurant cleans, each will earn $11,000; alternatively, if they both hire workers to clean, each will earn only $8,000. However, if one cleans and the other doesn't, more customers will choose the cleaner restaurant; the cleaner restaurant will make $16,000, and the other restaurant will make only $4,000. Complete the following payoff matrix using the previous information. (Note: All-You-Can-Eat Café and GoodGrub Diner are both profit-maximizing firms.) If All-You-Can-Eat Café and GoodGrub Diner decide to collude, the outcome of this game…Consider a remote town in which two restaurants, All-You-Can-Eat Café and GoodGrub Diner, operate in a duopoly. Both restaurants disregard health and safety regulations, but they continue to have customers because they are the only restaurants within 80 miles of town. Both restaurants know that if they clean up, they will attract more customers, but this also means that they will have to pay workers to do the cleaning. If neither restaurant cleans, each will earn $13,000; alternatively, if they both hire workers to clean, each will earn only $10,000. However, if one cleans and the other doesn't, more customers will choose the cleaner restaurant; the cleaner restaurant will make $18,000, and the other restaurant will make only $6,000. Complete the following payoff matrix using the information just given. (Note: All-You-Can-Eat Café and GoodGrub Diner are both profit-maximizing firms.) GoodGrub Diner Cleans Up Doesn't Clean Up All-You-Can-Eat Café Cleans Up , ,…Two firms, A and B, have entered the bike sharing market and have to decide on the amount of bikes to provide. Each firm can deploy either 100 bikes or 200 bikes. Assume that it costs both firms $10 per bike to deploy. The firm’s revenue will be $18 per bike if there are 2,00 bikes (in total) in the market; $15 per bike if there are 3,00 bikes in the market, and $11 per bike if there are 400 bikes in the market. (a) Establish the payoff matrix for profit earned and strategies faced by A and B. Solve for the Nash equilibrium. (b) A could invest in a machine that would lower the cost per bike from $10 to $5 (for A only). Other things equal, if A invests in the machine, what will be the Nash Equilibrium of the game? What is the maximum price A should pay for the investment in the machine? Hi, I have the answer sheet but may i request for a more detailed explanation to constructing the matrix as well as part (b)? Thank you.
- Consider a remote town in which two restaurants, All-You-Can-Eat Café and GoodGrub Diner, operate in a duopoly. Both restaurants disregard health and safety regulations, but they continue to have customers because they are the only restaurants within 80 miles of town. Both restaurants know that if they clean up, they will attract more customers, but this also means that they will have to pay workers to do the cleaning. If neither restaurant cleans, each will earn $14,000; alternatively, if they both hire workers to clean, each will earn only $11,000. However, if one cleans and the other doesn't, more customers will choose the cleaner restaurant; the cleaner restaurant will make $18,000, and the other restaurant will make only $6,000. Complete the following payoff matrix using the information just given. (Note: All-You-Can-Eat Café and GoodGrub Diner are both profit-maximizing firms.) GoodGrub Diner Cleans Up Doesn't Clean Up Cleans Up $4 2$ 24 2$ All-You-Can-Eat Café Doesn't Clean Up…Hansel has been making a cuckoo wristwatch, which he sells over the web. Customers are willing to pay $600 for Hansel’s watch, and each one costs him $240 to make. He has no fixed costs. Gretel is considering entry into this market. Her consultant has conducted a large-scale study of customers to determine how much they are willing to pay for watches of various quality levels. The consultant has found that customers’ willingness to pay equals 150q per watch, where q is a quality index the consulting firm has developed that ranges from 1 to 10. Gretel’s cost would be 15q2 per watch. Regardless of whether or not Gretel enters the market, and regardless of the quality level she chooses, Hansel will not change his competitive positioning. Suppose Gretel chooses to enter the market with a lower quality level to save on costs. Specifically, her quality index equals 3. What is her added value vis-à-vis Hansel (per watch)? What is the optimal quality level Gretel should choose…Company A and Company B are competing oligopolists. Both companies are considering increasing or maintaining their prices The payoff matrix shows the profits of the companies in millions based on their possible actions. Company B Increase Price Maintain Price Company A Increase Price $50, $40 $35, 530 Maintain Price 555, $45 $60, $35 The government offers a $5 milon subsidy to maintain current pricing. What is the expected outcome of the new payoff matrix, given the subsidy? The Nash equilibrium changes, and both companies will maintain their prices O The Nash equilbrium changes, and both companies will increase their prices O The Nash equilibrium remains the same, and both companies will increase their prices O Company A wit increase its price, whie Company B maintains its price. O Company A will maintain its price, while Company Bincreases ts price.