Consider a town in which only two residents, Daniel and Gabrielle, own wells that produce water safe for drinking. Daniel and Gabrielle can pump and X sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water. E Price Quantity Demanded Total Revenue ( Dollars per gallon) (Gallons of water) (Dollars) A-Z 6.00 5.50 45 $247.50 EI 5.00 90 $450.00 4.50 135 $607.50 4.00 180 $720.00 3.50 225 $787.50 3.00 270 $810.00 2.50 315 $787.50 2.00 360 $720.00 1.50 405 $607.50 1.00 450 $450.00 0.50 495 $247.50 ? 0 540 0 C+ Suppose Daniel and Gabrielle form a cartel and behave as a monopolist. The profit-maximizing price is |$ per gallon, and the total output is gallons. As part of their cartel agreement, Daniel and Gabrielle agree to split production equally. Therefore, Daniel's profit is $ , and Gabrielle's profit is $ APR 3 zoom 4 GHomework (Ch 17) 10 I, allu GaulIties pruIn Is |0 X Suppose that Daniel and Gabrielle have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopoly quantity. Then one night before going to sleep, Daniel says to himself, "Gabrielle and I aren't the best of friends anyway. If I increase my production to E 45 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow." After Daniel implements his new plan, the price of water to $ per gallon. Given Gabrielle and Daniel's production levels, Daniel's profit becomes |$ and Gabrielle's profit becomes | $ Because Daniel has deviated from the cartel agreement and increased his output of water to 45 gallons more than the cartel amount, Gabrielle decides that she will also increase her production to 45 gallons more than the cartel amount. After Gabrielle increases her production, Daniel's profit becomes |$ Gabrielle's profit becomes $ and total profit (the sum of the profits of Daniel and Gabrielle) is now | $ True or False: Based on the fact that both Daniel and Gabrielle increased production wom the initial cartel quantity, you know that the output effect was larger than the price effect at that quantity. O True O False Note that Daniel and Gabrielle started by behaving cooperatively. However, once Daniel decided to cheat, Gabrielle decided to cheat as well. In other words, Gabrielle's output decisions are based on Daniel's actions. C This behavior is an example of6. Using a payoff matrix to determine the equilibrium outcome Suppose that Snapface and Instashot are the only two firms in a hypothetical market that produce and sell polaroid cameras. 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 cameras. Instashot Pricing High Low EI High 11, 11 2, 18 Snapface Pricing Low 18, 2 10, 10 For example, the lower-left cell shows that i Snapface prices low and Instashot prices high, Snapface will earn a profit of $18 million, and Instashot will earn a profit of $2 million. Assume this is a simultaneous game and that Snapface and Instashot are both profit-maximizing firms. If Snapface prices high, Instashot will make more profit if it chooses a _ price, and if Snapface prices low, Instashot will make more profit if it chooses a price. If Instashot prices high, Snapface will make more profit if it chooses a _ price, and if Instashot prices low, Snapface will make more profit if it (? chooses a price. Considering all of the information given, pricing high a dominant strategy for both Snapface and Instashot. If the firms do not collude, what strategies will they end up choosing?Homework (Ch 17) X For example, the lower-left cell shows that if Snapface prices low and Instashot prices high, Snapface will earn a profit of $18 million, and Instashot will earn a profit of $2 million. Assume this is a simultaneous game and that Snapface and Instashot are both profit-maximizing firms. E If Snapface prices high, Instashot will make more profit if it chooses a _ price, and if Snapface prices low, Instashot will make more profit if it A-Z chooses a price. If Instashot prices high, Snapface will make more profit if it chooses a _ price, and if Instashot prices low, Snapface will make more profit if it EI chooses a price. Considering all of the information given, pricing high a dominant strategy for both Snapface and Instashot. If the firms do not collude, what strategies will they end up choosing? Both Snapface and Instashot will choose a high price. Both Snapface and Instashot will choose a low price. Snapface will choose a low price, and Instashot will choose a high price. O Snapface will choose a high price, and Instashot will choose a low price. ? True or False: The game between Snapface and Instashot is not an example of the prisoners' dilemma. True O False zoomQ Search this course Consider a town in which only two residents, Daniel and Gabrielle, own wells that produce water safe for drinking. Daniel and Gabrielle can pump and X sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water. E Price Quantity Demanded Total Revenue (Dollars per gallon) (Gallons of water) A-Z (Dollars) 6.00 0 5.50 EI 45 $247.50 5.00 90 $450.00 4.50 135 $607.50 4.00 180 $720.00 3.50 225 $787.50 3.00 270 $810.00 2.50 315 $787.50 2.00 360 $720.00 1.50 405 $607.50 1.00 450 $450.00 0.50 495 $247.50 ? 0 540 0 Suppose Daniel and Gabrielle form a cartel and behave as a monopolist. The profit-maximizing price is | $ per gallon, and the total output is gallons. As part of their cartel agreement, Daniel and Gabrielle agree to split production equally. Therefore, Daniel's profit is$ , and Gabrielle's profit is |$ X Suppose that Daniel and Gabrielle have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopoly quantity. Then one night before going to sleep, Daniel says to himself, "Gabrielle and I aren't the best of friends anyway. If I increase my production to 45 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow." A-7 After Daniel implements his new plan, the price of water to $ per gallon. Given Gabrielle and Daniel's production levels, Daniel's profit becomes $ and Gabrielle's profit becomes | $ EI Because Daniel has deviated from the cartel agreement and increased his output of water to 45 gallons more than the cartel amount, Gabrielle decides that she will also increase her production to 45 gallons more than the cartel amount. After Gabrielle increases her production, Daniel's profit becomes $ Gabrielle's profit becomes $ , and total profit (the sum of the profits of Daniel and Gabrielle) is now |$ True or False: Based on the fact that both Daniel and Gabrielle increased production from the initial cartel quantity, you know that the output effect was larger than the price effect at that quantity. True A+ ? O False Note that Daniel and Gabrielle started by behaving cooperatively. However, once Daniel decided to cheat, Gabrielle decided to cheat as well. In other words, Gabrielle's output decisions are based on Daniel's actions. This behavior is an example of APR atv zoom A 3E 7. Solving for dominant strategies and the Nash equilibrium Suppose Antonio and Trinity are playing a game that requires both to simultaneously choose an action: Up or Down. The payoff matrix that follows EI shows the earnings of each person as a function of both of their choices. For example, the upper-right cell shows that if Antonio chooses Up and Trinity chooses Down, Antonio will receive a payoff of 7 and Trinity will receive a payoff of 7. Trinity Up Down Up 5 , 4 7, 7 Antonio Down 4, 4 5, 1 In this game, the only dominant strategy is for to choose The outcome reflecting the unique Nash equilibrium in this game is as follows: Antonio chooses and Trinity chooses C- Grade It Now Save & Continue Continue without saving 16,345 APR 3 itv zoom 4 A