Home / Questions / 6. Using a payoff matrix to determine the equilibrium outcome Suppose there are only two firms that
6. Using a payoff matrix to determine the equilibrium outcome Suppose there are only two firms that sell tablets: Padmania and Capturesque. The following payoff matrix shows the profit (in millions of dollars) each company will earn, depending on whether it sets a high or low price for its tablets. Capturesque Pricing High Low High 10, 10 4, 12 Padmania Pricing 12, 4 9, 9 Low For example, the lower-left cell shows that if Padmania prices low and Capturesque prices high, Padmania will earn a profit of $12 million, and Capturesque will earn a profit of $4 million. Assume this is a simultaneous game and that Padmania and Capturesque are both profit-maximizing firms. If Padmania prices high, Capturesque will make more profit if it chooses a price, and if Padmania prices low, price. Capturesque will make more profit if it chooses a high low Fice, and if Capturesque prices low, If Capturesque prices high, Padmania will make more profit if it chooses a Padmania will make more profit if it chooses a price Considering all of the information given, pricing high dominant strategy for both Padmania and Capturesque. is If the firms do not collude, what strategies will they e IS not hoosing? Padmania will choose a low price, and Capturesque will choose a high price. OPadmania will choose a high price, and Capturesque will choose a low price. OBoth Padmania and Capturesque will choose a high price. OBoth Padmania and Capturesque will choose a low price True or False: The game between Padmania and Capturesque is not an example of the prisoners' dilemma. O True O False
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