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# payoff matrix

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Help - I have 2 questions I am struggling with - Please see attached.

thanks

https://brainmass.com/economics/oligopoly/payoff-matrix-298746

#### Solution Preview

1. What you have here is a demand schedule and it is given that the firm in question faces a market structure that is monopolistically competitive. In such a market firms make economic profit in the short run but make zero economic profit in the long run. The marginal cost is given to be \$70.

(a) The price in the market can be taken to be the marginal revenue that each unit generates. The firm will produce a quantity that maximizes the profit for the firm. This can be obtained by using the condition MR = MC. In this case it will mean finding a point where the price is equal to the marginal revenue of \$70. The quantity corresponding to that price is 5, and hence the firm will produce 5 units.

(b) This is a short-run condition. In the long run other firms will enter the market and the price has to fall to the lowest possible marginal cost. If the firm in question has a marginal cost above that then the firm will have to leave the market.

(c) If the firm is earning above normal profit, or economic profit, then other ...

#### Solution Summary

The payoff matrix is assessed.

\$2.19

## Given a payoff matrix determine whether each firm has dominant strategy.

Dominant Strategies
Suppose two competitors each face important strategic decisions where the payoff to each decision depend upon the reactions of the competitor. Firm A can choose
either row in the payoff matrix defined below, whereas firm B can choose either column. For firm A the choice is either "up" or "down"; for firm B the choice is either
"left" or "right". Notice that neither firm can unilaterally choose a given cell in the profit payoff matrix. The ultimate result of this one-shot
simultaneous-move game depends upon the choices made by both competitors. In this payoff matrix, strategic decisions made by firm A or firm B could signify decisions to offer a money-back
guarantee, lower prices, free shipping, and so on. The first number in each cell is the profit payoff to firm A; the second number is the profit payoff to firm B

Firm B
Firm A Competitive Strategy Left Right

Up \$ 75,000; \$ 10,000 \$ 50,000; \$ 40,000

Down \$ 25,000; \$ 25,000 \$ 80,000; \$ 30,000

A. Is there a dominant strategy for firm A? If so, what is it?

B. Is there a dominant strategy for firm B? If so, what is it?

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