Questions 14 through 18 refer to the information that follows. Consider a small
ID: 1218484 • Letter: Q
Question
Questions 14 through 18 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 question 17 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 cooperateExplanation / Answer
14(a) In Gray's case, he always earns higher payoff in every situation as compared to his counterpart.
15) open sundays is dominant strategy - he always earns a higher payoff with this strategy irrespective of Gray's strategy of opening or closing sundays.
16) Gray's dominant strategy is closed sunday as he earns higher payoff (9000 vs 8000) and (12000 vs 10000)
17) Gray closed sundays and white open sundays is the likely outcome as both players play their dominant strategies.
18) Gray could indeed do better (earn 12000 instead of 9000) if white closes sundays as well but white will earn less (6000 vs 7000) and needs further incentive to cooperate.
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