ECON 1000 Lecture Notes - Lecture 14: Nash Equilibrium, Normal-Form Game, Monopoly Profit

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23 Dec 2019

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ECON 1000 Full Course Notes

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Game theory - a tool for studying strategic behaviour, which is behaviour that takes into account the expected behaviour of others and the mutual recognition of interdependence. Rules : the setting of the game, the actions the players may take, and the. Payoffs : what will happen with each action. Payoff matrix: a table that shows the payoffs for every possible action by. Outcome : rational choice in pursuit of his own best interest, he chooses the action each player for every possible action by the other player that is best for him, given any action taken by the other player. If both players are rational, the outcome is an equilibrium called a nash equilibrium. Duopoly: a market in which there are only two producers that compete. Collusive agreement/cartel: an agreement between two or more firms to restrict output, raise the price, and increase profits. 4 possible combinations of actions for the firms.

Related Questions

4. Game theory terminology

Select the term that best describes each definition listed in the following table.

Definition	Nash Equilibrium	Dominant Strategy	Collusion	Tit-for-tat Strategy	Payoff Matrix	Prisoners' Dilemma
A player's best choice, if it exists, regardless of his or her opponent's strategy
A set of strategies (one for each player) in which each player's strategy is the best option for that player, given the chosen strategy of the player's opponents
A case in which individually rational behavior leads to a jointly inefficient outcome
A visual representation of a game showing all possible strategies for each player and all potential outcomes and payoffs

periwinklebuffalo937

In a duopoly were possible options are to retain the collusive price (collude) or to lower the price in an attempt to increase the firm's market share (cut). Consider the following payoff matrix for a game in which two firms attempt to collude under the Bertrand model: The payoffs are stated in terms of millions of dollars of profits earned per year. Explain what the Nash equilibrium outcome would be for this game.

greyweasel150

Suppose that two players are playing the following game. Player A can choose either Top or Bottom, and Player B can choose either Left or Right. The payoffs are given in the following table:

Where the number on the left is the payoff to Player A, and the number on the right is the payoff to Player B.

A) (1 point) Does player A have a dominant strategy, and if so what is it?

B) (1 point) Does player B have a dominant strategy and if so what is it?

C) (4 points) For each of the following say true if the strategy combination is a Nash equilibrium, and false if it is not a Nash equilibrium:

i) Player A plays Top and Player B plays Left

ii) Player A plays Bottom and Player B plays Left

iii) Player A plays Top and Player B plays Right

iv) Player A plays Bottom and Player B plays Right

D) (2 points) If each player plays her maximin strategy what will be the outcome of the game? (Give your answer in terms of the strategies each player chooses)

coffeemarten373

ECON 1000 Lecture Notes - Lecture 14: Nash Equilibrium, Normal-Form Game, Monopoly Profit

ECON 1000 Full Course Notes

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