Attempts Average $/5$

$6.$ Using a payoff matrix to determine the equilibrium outcome

Suppose that Vitablend and Blend Magic are the only two firms in a hypothetical market that produce and sell personal blenders. The following payoff matrix gives profit scenarios for each company $($in millions of dollars$),$ depending on whether it chooses to set a high or low price for blenders.

For example, the lower$-$left cell shows that if Vitablend prices low and Blend Magic prices high, Vitablend will earn a profit of $\backslash (\backslash$$ $18\backslash )$ million, and Blend Magic will earn a profit of $\backslash (\backslash$$ $5\backslash )$ million. Assume this is a simultaneous game and that Vitablend and Blend Magic are both profit$-$maximizing firms.

If Vitablend prices high, Blend Magic will make more profit if it chooses a $.$ price, and if Vitablend prices low, Blend Magic will make more profit if it chooses a price.

If Blend Magic prices high, Vitablend will make more profit if it chooses a price, and if Blend Magic prices low, Vitablend will make more profit if it chooses a price.

Considering all of the information given, pricing low a dominant strategy for both Vitablend and Blend Magic.

If the firms do not collude, what strategies will they end up choosing?

Vitablend will choose a low price, and Blend Magic will choose a high price.

Vitablend will choose a high price, and Blend Magic will choose a low price.

Both Vitablend and Blend Magic will choose a low price.

Both Vitablend and Blend Magic will choose a high price.

True or False: The game between Vitablend and Blend Magic is not an example of the prisoners' dilemma.

True

False