Author Question: Consider the following payoff matrix for a game in which two firms attempt to collude under the ... (Read 128 times)

CBme

  • Hero Member
  • *****
  • Posts: 548
Consider the following payoff matrix for a game in which two firms attempt to collude under the Bertrand model:
 
  Firm B cuts Firm B colludes
  Firm A cuts 6,6 24,8
  Firm A colludes 8,24 12,12
 
  Here, the possible options are to retain the collusive price (collude) or to lower the price in attempt to increase the firm's market share (cut). The payoffs are stated in terms of millions of dollars of profits earned per year. What is the Nash equilibrium for this game?
  A) Both firms cut prices.
  B) Both firms collude.
  C) There are two Nash equilibria: A cuts and B colludes, and A colludes and B cuts.
  D) There are no Nash equilibria in this game.

Question 2

We may be tempted to determine the optimal level of advertising expenditures at the point where the last dollar spent on advertising generates an additional dollar of sales revenue (i.e, the marginal revenue of advertising equals one).
 
  In general, this rule will not allow the firm to maximize profits because it ignores the: A) price elasticity of demand.
  B) marginal cost of additional sales generated by the advertising.
  C) advertising-to-sales ratio.
  D) fixed costs of advertising.



katara

  • Sr. Member
  • ****
  • Posts: 305
Answer to Question 1

C

Answer to Question 2

B



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question


 

Did you know?

People who have myopia, or nearsightedness, are not able to see objects at a distance but only up close. It occurs when the cornea is either curved too steeply, the eye is too long, or both. This condition is progressive and worsens with time. More than 100 million people in the United States are nearsighted, but only 20% of those are born with the condition. Diet, eye exercise, drug therapy, and corrective lenses can all help manage nearsightedness.

Did you know?

Complications of influenza include: bacterial pneumonia, ear and sinus infections, dehydration, and worsening of chronic conditions such as asthma, congestive heart failure, or diabetes.

Did you know?

You should not take more than 1,000 mg of vitamin E per day. Doses above this amount increase the risk of bleeding problems that can lead to a stroke.

Did you know?

The familiar sounds of your heart are made by the heart's valves as they open and close.

Did you know?

Limit intake of red meat and dairy products made with whole milk. Choose skim milk, low-fat or fat-free dairy products. Limit fried food. Use healthy oils when cooking.

For a complete list of videos, visit our video library