module 65 Game Theory 651
Section 12 Market Structures: Imperfect Competition- Which of the following is true on the basis of the payoff matrix
provided in Question 4?
a. Louise has no dominant strategy, but Thelma does.
b. Thelma has no dominant strategy, but Louise does.
c. Both Thelma and Louise have a dominant strategy.
d. Neither Thelma nor Louise has a dominant strategy.
e. Louise has a dominant strategy only if Thelma confesses.Tackle the Test: Free-Response Questions
- Refer to the payoff matrix provided. You and your competitor
must decide whether or not to market a new product.
a. If you market the new product and your competitor does
not, how much profit will you earn?
b. If you market the new product, what should your
competitor do?
c. Do you have a dominant strategy? Explain.
d. Does this situation have a Nash equilibrium? Explain.Your competitorYou$100 $0$100 $400$0 $0$400 $0MarketMarketDon’t
marketDon’t marketAnswer (6 points)
1 point:$400
1 point:Market the new product.
1 point:Ye s
1 point:Profits are greater (either $100 or $400 versus $0) if I market the
new product, regardless of what my competitor does.
1 point:Ye s
1 point:Both players marketing the product is a Nash equilibrium because
neither side wants to change to not marketing, given what the other side is
doing. (In fact, in this case both sides want to market the product regardless
of what the other side is doing, so it is a dominant strategy equilibrium as
well as a Nash equilibrium.)- Draw a clearly labeled payoff matrix illustrating the
following situation. There are two firms, “Firm A” and
“Firm B.” Each firm must decide whether to charge a high
price or a low price. If one firm charges a high price and the
other a low price, the firm charging the high price will earn
low profits while the firm charging the low price will earn
high profits. If both firms charge a high price, both earn
high profits and if both firms charge low prices, both earn
low profits.