# Use the following payoff matrix for a simultaneous-move one-shot game to answer the accompanying que

Use the following payoff matrix for a

simultaneous-move one-shot game to answer the accompanying questions.

Player 2

Strategy

C

D

E

F

Player 1

A

21, 5

25, 9

18, 15

12, 12

B

13, 4

28, 11

9, 18

14, 16

a. What is player 1â€™s optimal strategy?

Player 1 does not

have an optimal strategy.

Strategy B.

Strategy A.

b. Determine player 1â€™s equilibrium payoff.

Use the following normal-form game to answer

the questions below.

Player 2

Strategy

C

D

Player 1

A

30, 30

70, 0

B

0, 70

60, 60

a. Identify the one-shot Nash equilibrium.

b. Suppose the players know this game will be

repeated exactly three times. Can they achieve payoffs that are better than the

one-shot Nash equilibrium?

c. Suppose this game is infinitely repeated and

the interest rate is 6 percent. Can the players achieve payoffs that are better

than the one-shot Nash equilibrium?

d. Suppose the players do not know exactly how

many times this game will be repeated, but they do know that the probability

the game will end after a given play is ?. If ? is sufficiently low, can

players earn more than they could in the one-shot Nash equilibrium?

Suppose Toyota and Honda must decide whether to

make a new breed of side-impact airbags standard equipment on all models.

Side-impact airbags raise the price of each automobile by $1,000. If both firms

make side-impact airbags standard equipment, each company will earn profits of

$1 billion. If neither company adopts the side-impact airbag technology, each

company will earn $0.5 billion. If one company adopts the technology as

standard equipment and the other does not, the adopting company will earn a

profit of $1.5 billion and the other company will earn $-0.5 billion.

If you were a decision maker at Honda, would you

make side-impact airbags standard equipment?

Yes.

No.

There is not enough

information to answer the question.

If Toyota and Honda were able to cooperate,

would you expect this same outcome?

Yes.

There is not enough

information to answer the question.

No.

At a time when demand for ready-to-eat cereal was stagnant, a

spokesperson for the cereal maker Kelloggâ€™s was quoted as saying, â€œ . . . for

the past several years, our individual company growth has come out of the other

fellowâ€™s hide.â€ Kelloggâ€™s has been producing cereal since 1906 and continues to

implement strategies that make it a leader in the cereal industry. Suppose that

when Kelloggâ€™s and its largest rival advertise, each company earns $2 billion

in profits. When neither company advertises, each company earns profits of $16

billion.

If one company advertises and the other does

not, the company that advertises earns $56 billion and the company that does

not advertise loses $4 billion. For what range of interest rates could these

firms use trigger strategies to support the collusive level of advertising?

Instruction:Enter your answer as a percentage rounded to the nearest

whole number.

i ?percent

You are the manager of a firm that manufactures

front and rear windshields for the automobile industry. Due to economies of

scale in the industry, entry by new firms is not profitable. Toyota has asked

your company and your only rival to simultaneously submit a price quote for

supplying 100,000 front and rear windshields for its new Highlander. If both

you and your rival submit a low price, each firm supplies 50,000 front and rear

windshields and earns a zero profit. If one firm quotes a low price and the

other a high price, the low-price firm supplies 100,000 front and rear

windshields and earns a profit of $11 million and the high-price firm supplies

no windshields and loses $2 million.

If both firms quote a high price, each firm

supplies 50,000 front and rear windshields and earns a $6 million profit.

Determine your optimal pricing strategy if you and your rival believe that the

new Highlander is a â€œspecial editionâ€ that will be sold only for one year.

Would your answer differ if you and your rival

were required to resubmit price quotes year after year and if, in any given

year, there was a 55 percent chance that Toyota would discontinue the

Highlander?

Yes – a collusive

outcome can be sustained as a Nash equilibrium.

No – a collusive

outcome cannot be sustained as a Nash equilibrium.