Microeconomics,, 16th Canadian Edition

Large

Factory

Honda profits:

$25 million

Honda profits:

$14 million

Toyota profits:

$12 million

Toyota profits:

$14 million

a. Assuming that the demand curve for cars in this new
market is negatively sloped and unchanging, explain the
economic reasoning behind the prices and profits shown
in each cell in the payoff matrix.
b. What is the cooperative outcome in this game? Is it likely
to be achievable? Explain.
c. What is Honda’s best action? Does it depend on Toyata’s
action?
d. What is Toyata’s best action? Does it depend on Honda’s
action?
e. What is the non-cooperative outcome in this game? Is it a
Nash equilibrium?