a) (H,H) b) (L,L) c) (L,H) d) (H,L) e) there is no pure strategy nash equilibriu

Question

a) (H,H)

b) (L,L)

c) (L,H)
d) (H,L)
e) there is no pure strategy nash equilibrium.

n is 5% per year (d-009s capital is valued at $200,000,000. Its rate of io a) Compute HW's earned rate of return. Let the normal rate of return in the widget industry be 5% (that is, r = 0.05). Is HW making positive economic profit? If so, what is it? What is HW's excess rate of return, if any? b) Part II (5 points each, 30 points total) For each question circle the letter or letters of the answers you choose. Be careful. Wrong answers will cancel out correct answers within a question (but you can't score less than zero on any question). Consider the simultaneous move two-player game represented in normal form by the following payoff matrix (the first number in each box is firm 1's payoff): 3. Firm 2 Firm 1 14 13 12 12 Each firm can choose a high output (H) or a low (L) output. Which of the following set of strategies, if any, are pure strategy Nash equilibria in this game:

Explanation / Answer

If Firm 2 chooses strategy H then Firm 1 will get pay-off of 11 if it also chooses strategy H and 7 if it chooses strategy L.

Since, pay-off is higher in case of strategy H, Firm 1 will choose Strategy H if Firm 2 chooses Strategy H.

If Firm 2 chooses strategy L then Firm 1 will get pay-off of 14 if it also chooses strategy H and 12 if it chooses strategy L.

Since, pay-off is higher in case of strategy H, Firm 1 will choose Strategy H if Firm 2 chooses Strategy L.

If Firm 1 chooses strategy H then Firm 2 will get pay-off of 11 if it also chooses strategy H and 8 if it chooses strategy L.

Since, pay-off is higher in case of strategy H, Firm 2 will choose Strategy H if Firm 1 chooses Strategy H.

If Firm 1 chooses strategy L then Firm 2 will get pay-off of 13 if it also chooses strategy H and 12 if it chooses strategy L.

Since, pay-off is higher in case of strategy H, Firm 2 will choose Strategy H if Firm 1 chooses Strategy L.

It can be ssen both firm will choose Strategy H. So, strategy H is pure strategy for both of them.

Hence, pure strategy nash equilibrium in this game is (H, H).

Hence, the correct answer is the option (a).

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