Payoff Matrix Firm B Low Price High Price Low e Price 10 10 25 Price 5 20 45) Th
ID: 1127888 • Letter: P
Question
Payoff Matrix Firm B Low Price High Price Low e Price 10 10 25 Price 5 20 45) The above figure shows a payoff matrix for two firms, A and B, that must choose between a high-price strategy and a low-price strategy. The Nash equilibrium in this game A) does not exist. B) occurs when firm A sets a high price and firm B sets a low price C) occurs when both firms set a low price. D) occurs when both firms set a high price 46) The gambler's fallacy is 46) A) the false belief that past events affect current independent outcomes B) true in many games, such as flipping coins C) a result of overconfidence. D) the false belief that past events affect current dependent outcomes. Payoff Matrix Firm B Low Price High Price 10 5 Low Price 10 25 2 High Price 20 47) 47) The above figure shows a payoff matrix for two firms, A and B, that must choose between a high-price strategy and a low-price strategy. For firm B A) setting a high price is the dominant strategy B) there is no dominant strategy C) doing the opposite of firm A is always the best strategy D) setting a low price is the dominant strategy. B-8Explanation / Answer
Question 45
If Firm B chooses low price strategy then Firm A will earn a pay-off of 10, if it chooses low price strategy and pay-off of $5 if it chooses high price strategy. Since, pay-off is higher in case of low-price strategy, Firm A will choose low price strategy if Firm B chooses low price strategy.
If Firm B chooses high price strategy then Firm A will earn a pay-off of 25, if it chooses low price strategy and pay-off of $20 if it chooses high price strategy. Since, pay-off is higher in case of low-price strategy, Firm A will choose low price strategy if Firm B chooses high price strategy.
It can be seen that Firm A will always choose low-price strategy regardless of what Firm B does.
So, low price strategy is dominant strategy of Firm A.
If Firm A chooses low price strategy then Firm B will earn a pay-off of 10, if it chooses low price strategy and pay-off of $5 if it chooses high price strategy. Since, pay-off is higher in case of low-price strategy, Firm B will choose low price strategy if Firm A chooses low price strategy.
If Firm A chooses high price strategy then Firm B will earn a pay-off of 25, if it chooses low price strategy and pay-off of $20 if it chooses high price strategy. Since, pay-off is higher in case of low-price strategy, Firm B will choose low price strategy if Firm A chooses high price strategy.
It can be seen that Firm B will always choose low-price strategy regardless of what Firm A does.
So, low price strategy is dominant strategy of Firm B.
The combination of dominant strategies is the Nash equilibrium.
So, the Nash equilibrium of this game occurs when both firm set low price.
The correct answer is the option (C).
Question 47
If Firm A chooses high price strategy then Firm B will earn a pay-off of 25, if it chooses low price strategy and pay-off of $20 if it chooses high price strategy. Since, pay-off is higher in case of low-price strategy, Firm B will choose low price strategy if Firm A chooses high price strategy.
It can be seen that Firm B will always choose low-price strategy regardless of what Firm A does.
So, low price strategy is dominant strategy of Firm B.
The correct answer is the option (D).
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