refer to the information that follows. Consider a small town that is served by t
ID: 1189492 • Letter: R
Question
refer to the information that follows. Consider a small town that is served by two grocery stores, White and Gray. Each store must decide whether it will remain open on Sunday or whether it will close on that day. Monthly payoffs for each strategy pair are as shown in the table below.
Which firm is the most profitable in this market?
Gray (Profit is highest in every situation.)
White
Neither – they are equally profitable
Neither – there is no profit made by either firm
What is White’s dominant strategy?
Open Sundays
Closed Sundays
There is no dominant strategy
What is Gray’s dominant strategy?
Open Sundays
Closed Sundays
There is no dominant strategy
What will be the likely equilibrium outcome, assuming no additional information is available to either firm?
Both open Sundays
Both closed Sundays
**White open Sundays, Gray closed Sundays
White closed Sundays, Gray closed Sundays
Is the position identified in the previous the best possible outcome for both firms?
Yes, the position identified in the previous question is the best outcome for both.
No, it would be mutually advantageous to cooperate and choose a different outcome.
Gray could do better, but White is already in the best position and would therefore need an incentive to cooperate.
White could do better, but Gray is already in the best position and would therefore need an incentive to cooperate.
Gray's Choices 8,000 10,00 Monthly Profit Payoffs ($) Open Sundays Closed Sundays 9,000 Open White'sS Choices SundayS 4,000 7,000 Closed 12,000 Sundays 3,000 6,000Explanation / Answer
1.
Gray is the most profitable in this market.
Its payoff is maximum in every situation.
2.
When Gray opens, White should open
When Gray closes, White should open
Thus, White has dominant strategy to open.
3.
When White opens, Gray should close
When White closes, Gray should close
Thus, Gray has dominant strategy to close.
4.
Nash equilibrium: (Open, close)
5.
Gray could do better, but White is already in the best position and would therefore need an incentive to cooperate.
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