Key Answer of Exercises Chapter 10 - Managerial Economics [PDF]

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MM FEB-UGM MAN 5007 (PRA-MBA) Managerial Economics Hengki Purwoto KUNCI JAWABAN TUGAS KELOMPOK Bab 10



No. 2 a.



Player 2 Strategy Player 1



A



B



A



$400, $400



$100, $600



B



$600, $100



$200, $200



b. B is dominant for each player. c. (B, B). d. Joint payoffs from (A, A) > joint payoffs from (A, B) = joint payoffs from (B, A) > joint payoffs from (B, B). e. No; each firm’s dominant strategy is B. Therefore, since this is a one-shot game, each player would have an incentive to cheat on any collusive arrangement. No. 4 a. (A, C). b. No. This is a finitely played game with 3 rounds. Players know that round 3 is the last round, so they will treat that as a one shot game (or as if there is no tomorrow). Therefore, they both cheat in round 3. Because they know they will both cheat in round 3 and that they can't punish them for it in a future round, they cheat in round 2. This continues to unravel and they cheat in every round. c. If firms adopt the trigger strategies outlined in the text, higher payoffs can be  Cheat −  Coop 1  . Here, πCheat = 70, πCoop = 60, πN = 30, and the interest achieved if  Coop −  N i 𝜋 𝐶ℎ𝑒𝑎𝑡 − 𝜋 𝐶𝑜𝑜𝑝



70−60



rate is i = .06. Since 𝜋𝐶𝑜𝑜𝑝 − 𝜋𝑁 = 60−30 = 1/3 = 0.33 < 1/i = 16.67 each firm can indeed earn a payoff of 60 via the trigger strategies. d. Yes. With θ sufficiently low, this resembles the infinitely repeated game.



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