Homework $($Ch $17)$

Attempts $$ Keep the Highest $/5$

$6.$ 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.

$\backslash$table$[[$Vitablend Pricing,,Blend Magic Pricing$],[,$High,Low$],[$High$,14,14,5,18],[$Low$,18,5,11,11]]$

For example, the lower$-$left cell shows that if Vitablend prices low and Blend Magic prices high, Vitablend will earn a profit of $$18$ million, and Blend Magic will earn a profit of $$5$ 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 $q,$ 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 $q,$ price, and if Blend Magic prices low, Vitablend will make more profit if it chooses a $q,$ price.