# Problem 10-03 and Problem 10-17 (2015)

| October 3, 2018

Problem 10-03 (Algo)
Use the following payoff matrix for a simultaneous-move
one-shot game to answer the accompanying questions.

Player
2

Strategy

C

D

E

F

Player
1

A

7,
16

19,
24

23,
8

12,
14

B

18,
7

7,
22

21,
9

15,
14

a. What is player 1’s optimal strategy?

Strategy B.

Strategy A.

Player 1 does not have an optimal
strategy.

b. Determine player 1’s equilibrium payoff.

Problem 10-17 (Algo)
At a time when demand for
ready-to-eat cereal was stagnant, a spokesperson for the cereal maker Kellogg’s
was quoted as saying, “ . . . for the past several years, our individual
company growth has come out of the other fellow’s hide.” Kellogg’s has been producing
cereal since 1906 and continues to implement strategies that make it a leader
in the cereal industry. Suppose that when Kellogg’s and its largest rival
advertise, each company earns \$0 billion in profits. When neither company
advertises, each company earns profits of \$10 billion.

If one company advertises and the other does not, the company that advertises
earns \$52 billion and the company that does not advertise loses \$2 billion. For
what range of interest rates could these firms use trigger strategies to
support the collusive level of advertising?

Instruction:
Enter your answer as a percentage rounded to the nearest whole number.

i ? percent

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