# 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

If Toyota and Honda were able to cooperate,
would you expect this same outcome?

Yes.

There is not enough

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?

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.