WAME:

MICRO HW

Table $1$

Two home$-$improvement stores $($Big Box Deluxe and Homes R Us$)$ in a growing urban area are interested in expanding their market share. Both are interested in expanding the size of their store and parking lot to accommodate potential growth in their customer base. The following game depicts the strategic outcomes that result from the game. Increases in annual profits of the two home$-$improvement stores are shown in the table below.

Refer to Table $1.$ Increasing the size of its store and parking lot is a dominant strategy for

a$.$ Big Box Deluxe, but not for Homes R Us$.$

b$.$ Homes R Us$,$ but not for Big Box Deluxe.

c$.$ both stores.

d$.$ neither store.

ANS:

$2.$ Refer to Table $1.$ If both stores follow a dominant strategy, Homes R Us's annual profit will grow by

a$.$ $$0\mathrm{.}30$ million.

b$.$ $$0\mathrm{.}75$ million.

c$.$ $$1\mathrm{.}25$ million.

d$.$ $$1\mathrm{.}70$ million.

ANS:

$3.$ Refer to Table $1.$ If both stores follow a dominant strategy, Big Box Deluxe's annual profit will grow by

a$.$ $$0\mathrm{.}20$ million.

b$.$ $$0\mathrm{.}50$ million.

c$.$ $$1\mathrm{.}00$ million.

d$.$ $$1\mathrm{.}60$ million.

ANS:

$4.$ Refer to Table $1.$ When this game reaches a Nash equilibrium, annual profit will grow by

a$.$ $$0\mathrm{.}75$ million for Homes R Us and by $$0\mathrm{.}50$ million for Big Box Deluxe.

b$.$ $$1\mathrm{.}70$ million for Homes R Us and by $$0\mathrm{.}20$ million for Big Box Deluxe.

c$.$ $$0\mathrm{.}30$ million for Homes R Us and by $$1\mathrm{.}60$ million for