Question
In: Economics
(Table 12.8) Payoffs represent profits measured in thousands of dollars. Firm 2 Develop Product X Develop...
(Table 12.8) Payoffs represent profits measured in thousands of
dollars.
Which of the following outcomes represent(s) a Nash
equilibrium? |
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Solutions
Expert Solution
If Firm 1 develops product A the Firm 2 will develop product Y as pay-off for Firm 2 is highest in such case.
If Firm 1 develops product B then Firm 2 will develop product X as pay-off for Firm 2 is highest in such case.
If Firm 1 develops product C then Firm 2 will develop Product X as pay-off for Firm 2 is highest in such case.
It can be seen that Firm 2 will never develop product Z whatever be the strategy adopted by Firm 1.
So, strategy of developing product Z is strictly dominated and will be eliminated.
Now, Firm 2 has two strategies - To develop Product X or to develop the Product Y.
If Firm 2 develops product X then Firm 1 will develop Product C as pay-off for Firm 1 is highest in such case.
If Firm 2 develops product Y then Firm 1 will develop Product A as pay-off for Firm 1 is highest in such case.
So, Nash equilibrium of this game is (600, 990) and (650, 400).
Hence, the correct answer is the option (4).
Rahul Sunny answered 1 year agoRelated Solutions
The payoff table below provides the profits (in thousands of dollars) for each of four alternatives...
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Supplies
Alternative
S1
S2
S3
A1
112
67
-26
A2
82
85
101
A3
85
72
80
A4
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90
110
Suppose that the probabilities for the supplies above are
P(S1) = 0.6,
P(S2) = 0.2, and
P(S3) = 0.1.
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The data in the incomplete table below represent annual Savings (in
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Annual Income X ('000 dollars)
Annual Saving Y ('000 dollars)
X2
Y2
XY
60
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80
40
100
30
120
49
140
57
180
50
200
70
Total=
Total=
Total= .
Total=
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