Respuesta :
Answer:
Task a: Explanations are shown below
Task b: Explanations are shown below
Task c: Explanations are shown below
Task d: Explanations are shown below
Explanation:
Task a:
If Attaburger selects a high price, what strategy will Beefsteak select?
Solution:
If Attaburger selects high price, beefsteak will get more profit from low price ($14), as $14 is greater than $13. Beaf stake will select low price. Pay-off values represent profits to restaurants.
Task b:
Does Beefsteak have a dominant strategy? Explain using the dollar values in the payoff matrix.
Solution:
When Attaburger chooses high price, Beefsteak's best response is low price ($14).
When Attaburger chooses low price, Beefsteaks's best response is high price $8.
therefore, there is no dominant strategy for beefsteak, as there is no strategy which is always its best response.
Task c:
Assume that Attaburger and Beefsteak collude, both agreeing to choose high prices in order to maximize their joint profit at $23. If such an agreement is not legally enforceable, does Attaburger have an incentive to break the agreement? Explain using specific values.
Solution:
Both choose high price = ($10 and $13)
so that their joint profit is $23 ($10 + $13)
Yes, Attaburger has an incentive to break the agreement. This is because his profit by choosing high price is $10, but he can get higher profit $12 by charging low price when beefsteak is charging high price. Therefore, Attaburger's profit would increase to $12, whereas, Beefsteak's profit would decrease to $8 - ($12, $8).
Task d:
Instead of colluding, the firms simultaneously select their prices. In the Nash equilibrium, what are the daily profits for each of the following?
1. Attaburger
2. Beefsteak
Solution:
From part b, we know best responses of beefsteak.
Now we need to look at the best response of Attaburger.
- When beefsteak chooses high price, Attaburger's best response is low price - $12.
- When beefsteak chooses low price, Attaburger's best response is low price - $9.
- Thus we observe, that best response of both restaurants occur simultaneously when Attaburger chooses low price ($12), and beefsteak chooses high price ($8). Thus equilibrium is ($12, $8).
(i) Attaburger's profit is $12
(ii) Beefsteak profit is $8
Part A) If Attaburger chooses a high price, the beefsteak will make more money than if it chooses a low price ($14), because $14 is more than $13. Beefsteak will choose the cheapest option. Restaurant earnings are represented by pay-off values.
Part B)No, Beefsteak does not have dominant strategy
- When Attaburger chooses a high price, Beefsteak's best response is low price ($14).
- When Attaburger chooses a low price, Beefsteaks's best response is a high price $8.
Part C)Yes, Attaburger has an incentive to break the agreement
Both choose high price = ($10 and $13)
so that their joint profit is $23 ($10 + $13)
Attaburger makes a profit of $10 by charging a high price, but he can make a profit of $12 by offering a low price while beefsteak charges a high price. As a result, Attaburger's profit would rise to $12, while Beefsteak's would fall to $8 - ($12, $8).
Part D)From part b, we know the best responses of beefsteak.
Now we need to look at the best response of Attaburger.
• When beefsteak chooses a high price, Attaburger's best response is low price - $12.
• When beefsteak chooses a low price, Attaburger's best response is low price - $9.
• As a result, we see that the best response from both restaurants happens at the same time when Attaburger picks a low price ($12) and beefsteak chooses a high price ($8). As a result, the equilibrium is ($12, $8).
(i) Attaburger's profit is $12
(ii) Beefsteak profit is $8
For further details refer link:
https://brainly.com/question/3156184?referrer=searchResults
