These two firms must make simultaneous pricing decisions. They can choose low, medium, or high prices.

The payoffs given are in thousands of dollars of profit per month. Paxton Industries Low Low Hardaway Corp. Medium High
A B

Medium
C

High $32, $20

F

$30, $30
D E

$45, $20

$20, $45
G H

$40, $40
I

$45, $35 $50, $50

$15, $48

$38, $52

Payoffs in thousands of dollars of monthly profits.

13-24 Following the procedure of successive elimination of dominated strategies, the manager of Hardaway Corporation will eliminate in the first round the strategy of setting a. a low price. b. a medium price. c. a high price. d. None of the above; Hardaway does not have a dominated strategy. 13-25 Following the procedure of successive elimination of dominated strategies, the manager of Paxton Industries will eliminate in the first round the strategy of setting a. a low price. b. a medium price. c. a high price. d. None of the above; Paxton Industries does not have a dominated strategy. 13-26 After the first round of eliminating dominated strategies for both firms, a. Hardaway Corporation has a dominant strategy, which is to price low. b. Hardaway Corporation has a dominant strategy, which is to price medium. c. Paxton Industries has a dominant strategy, which is to price low. d. Paxton Industries has a dominant strategy, which is to price medium. e. both b and d. 13-27 After the first round of eliminating dominated strategies for both firms, a. no more dominated strategies remain for further elimination. b. setting a medium price for Hardaway Corporation can next be eliminated in a second round. c. setting a high price for Hardaway Corporation can next be eliminated in a second round. d. no other dominated strategies can be eliminated for Paxton Industries. e. both c and d. 13-28 For the simultaneous pricing decision facing Hardaway Corporation and Paxton Industries, a. cell I is a strategically stable pricing outcome. b. cell A is the likely outcome of the pricing decision. c. cell E is the equilibrium pricing decision. d. both firms pricing low is a Nash equilibrium. e. both b and d.

Two mens clothing stores that compete for most of the market in a small town in Ohio must choose their advertising levels simultaneously. The following payoff table facing the two firms, Arbuckle & Son and Mr. Bs, shows the weekly profit outcomes for the various advertising decision combinations. Use this payoff table to answer questions. Mr. Bs advertising level High
Arbuckle & Son advertising level High
A B

Low $3,000, $5,000

D

$4,000, $4,000
C

Low

$5,000, $3,000

$3,500, $3,500

Arbuckle and Son a. has a dominant strategy: choose a high level of advertising. b. has a dominant strategy: choose a low level of advertising. c. has a dominated strategy: choose a high level of advertising. d. has a dominated strategy: choose a low level of advertising. e. both b and c. Mr. Bs a. has a dominant strategy: choose a high level of advertising. b. has a dominant strategy: choose a low level of advertising. c. has a dominated strategy: choose a low level of advertising. d. has no dominated strategy e. both a and c. Which of the following statements is NOT true for the advertising decision facing Arbuckle & Son and Mr. B? Which of the following is TRUE/FALSE? When both firms choose a high level of advertising, they are in Nash equilibrium. When both firms choose a low level of advertising, they are in Nash equilibrium. This is a prisoners dilemma decision situation.

13-6F Burger King and Mac Donalds are situated on opposite corners of a downtown intersection. Burger

King and Mac Donalds compete on the basis of the prices they set for their burger, fry, and soda combination meals. Every Monday, Burger King and Mac Donalds simultaneously choose their combo meal prices, which will remain in effect for the rest of the week. Burger King and MacDonalds consider only two possible prices: a low price of $3.50 or a high price of $4.50 for their combination meals. The weekly profit from each of the four possible combinations of decisions are given in the following table:

Burger Kings price Low ($3.50) Mac Donalds price Low ($3.50) High ($4.50)
A B

High ($4.50) $6,500, $5,000

D

$3,000, $5,500
C

$2,000, $9,000

$5,000, $8,000

Payoffs in dollars of weekly profit.

a. b. c. d.

The pricing decision facing Burger King and Mac Donalds __________ (is, is not) a prisoners dilemma. Cooperation between Burger King and Mac Donalds occurs in cell ____ of the payoff table. The noncooperative outcome occurs in cell ______. Cell _____ represents cheating by Burger King. If Burger King and Mac Donalds make their pricing decision just one time, they will likely end up in cell _______.

13-3F Find the solution to the following advertising decision game between Colt Enterprises and Remington, Inc. by using the method of successive elimination of dominated strategies. Remingtons advertising budget $1 million Colts advertising budget $1 million $2 million $3 million
A B

$2 million
C

$3 million $20, $65

F

$60, $55
D E

$70, $60

$80, $40
G H

$40, $55
I

$60, $50 $65, $55

$85, $35

$67, $45

Annual payoffs in millions of dollars of profits

a. b. c. d.

In the first round of elimination, Colt can eliminate the ad budget level _________ ($1 million, $2 million, $3 million). In the first round of elimination, Remington can eliminate the ad budget level _________ ($1 million, $2 million, $3 million). After the first round of elimination, only _________________ (Colt, Remington) has another dominated strategy, which is _________ ($1 million, $2 million, $3 million). The likely outcome of this simultaneous advertising decision is for Colt to spend _________ ($1 million, $2 million, $3 million) on advertising