The payoff matrix below lists the total revenue earned by Hailey and Bailey as a

Question

The payoff matrix below lists the total revenue earned by Hailey and Bailey as a function of how much they sell. Payoffs are written as

2) The "payoff matrie below lis thc total evenue camed by Haile and Bil s a finction of how much they both sell. Payoffs are written as (7,laley, kiley) Bailey 94 -5 6 q2 (16, 16) (15, 21) (12,24) (10,25) (8, 24) Hailey 3 (21, 14) (8, 18) (5, 20) (12, 20) (9, 18) q4 (24, 12 (20, 15) (16, 16) (12, 15) (8, 12) q-5 (25, 10) (20, 12) (15, 12) (10, 10) (5, 6) q-6 (24, 8) (18, 9) (12, 8) (6, 5) (0, 0) a) Find and circle the strategy that maximizes the TOTAL PROFIT, i.e. the sum of Hailey and Bailey's profits. We'll refer to this as the "coperative" solution. b) Using the "underline" method, determine if either Hailey or Bailey can make a higher profit if the other player plays the "cooperative" solution c) Will Hailey and Bailey cooperate? Why or why not? (Assume they are rational and answer in 4 sentences or fewer). d) Find the Nash equilibrium of this game. How much cider will each player bring, and what will their individual payoffs be?

Explanation / Answer

A) Total profit is maximised at (3,3) where total payoff is 36

B) yes both can be made better off and can receive higher payoff

C)no because of other player dont cooperate then cooperating player will be worse off and this fear of trust breaking makes collusion unsustainable.

D). (q=5,q=3) and (q=4,q=4) and (q=3, q=5) are the nash equilibrium

Main is (4,4) where both player receives payoff of 16 each

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