2. Two cigarette manufacturers repeatedly play the following simultaneous advertising game. If both advertise, each earns profits of $0. If neither advertises, each earns profits of $10million. If one advertises and the other does not, the firm that advertises earns $20million and the other firm loses $1million.
4. Firms J and K produce compact-disc players and compete against one another. Each firm can develop either an economy player (E) or a deluxe player (D). According to the best available market research, the firms resulting profits are given by the following payoff table:
Firm K
Firm J
E D
E 30,55 50,60
D 40,75 25,50
a) The firms make their decisions independently and each is profit maximizing. What is the Nash equilibrium(s)? (1 point)
b) If this game is played simultaneously, what would be the outcome? (1 point)
c) Suppose that firm J has a lead in development and so can move first. What action should J take and what should be K’s response? (1 point)
d) What will the outcome be if K can move first? (1 point)
I cannot grasp the concepts. Please help. Thank you.
Sorry the payoff table didn't come out properly. Anyways, directly above (30,55) it should say E and directly above (50,60) it should say D. Where E and D are vertical is Firm J and Where E and D are horizontal is Firm K. Firm J is to the left of payoffs (30,55) corresponding to E and (40,75) corresponding to D. Firm K is directly above the payoffs (30,55) corresponding to E and (50,60) corresponding to D. Hope that clears it up. Thanks again!
4. Firms J and K produce compact-disc players and compete against one another. Each firm can develop either an economy player (E) or a deluxe player (D). According to the best available market research, the firms resulting profits are given by the following payoff table:
Firm K
Firm J
E D
E 30,55 50,60
D 40,75 25,50
a) The firms make their decisions independently and each is profit maximizing. What is the Nash equilibrium(s)? (1 point)
b) If this game is played simultaneously, what would be the outcome? (1 point)
c) Suppose that firm J has a lead in development and so can move first. What action should J take and what should be K’s response? (1 point)
d) What will the outcome be if K can move first? (1 point)
I cannot grasp the concepts. Please help. Thank you.
Sorry the payoff table didn't come out properly. Anyways, directly above (30,55) it should say E and directly above (50,60) it should say D. Where E and D are vertical is Firm J and Where E and D are horizontal is Firm K. Firm J is to the left of payoffs (30,55) corresponding to E and (40,75) corresponding to D. Firm K is directly above the payoffs (30,55) corresponding to E and (50,60) corresponding to D. Hope that clears it up. Thanks again!