--%>
Assignment Help - homework help

Cooperative and non-cooperative outcome

Question:

Cineplex and AMC are two rival movie theatre chains. They must each decide whether to set an admission price of $10 or set an admission price of $12; of course, the number of movie goers (and thus their revenues) will depend both on the price they set as well as the price charged by their competitor. Their profit levels are given in the matrix below.

 

Cineplex

$10

$12

 

AMC

$10

(7,7)

(8*,8*)

$12

(6,8)

(7,7)

a) If AMC and Cineplex could cooperate, which set of actions would generate the highest industry profit? Is that outcome likely to be achievable?

Answer:

If both firms cooperate, then AMC will charge $10 and Cineplex will charge $12. This maximizes there and also the industry profits. Also, this is the most likely outcome in the market as for AMC charging $10 is the dominant strategy, regardless of what Cineplex charges. Given this strategy of AMC, charging $12 is the best strategy for Cineplex.

b) What is AMC's best action(s)? Does it depend on Cineplex's action?

Answer:

As discussed above, AMC's best action is to charge $10, regardless of what Cineplex charges. Therefore, this is also AMC's dominant strategy.

c) What is Cineplex's best action(s)? Does it depend on AMC's move?

Answer:

If AMC charges $10, then Cineplex's best action is to charge $12 as it maximizes its profits. If AMC charges $12, then Cineplex's best strategy is to charge $10, as it maximizes its profits. As we see, Cineplex's best actions are dependent upon AMC's moves.

d) If Cineplex and AMC cannot cooperate, what outcome(s) would occur? Is there a difference between the cooperative and non-cooperative outcome?

Answer:

The Nash equilibrium in this game is the same as the cooperative and non-cooperative outcome , i.e., AMC charges $10 and Cineplex charges $12. This is because of the fact that this optimizes both firms' profits.

   Related Questions in Business Economics

  • Q : Define the term Abstractions in

    Define the term Abstractions in economics?

    		•
  • Q : An Inquiry in the Nature and Causes The

    The first comprehensive work upon economics written within English was authored through Adam Smith in 1776 year and entitled that “An Inquiry within the Nature and Causes of: (1) Laws of Supply and Demand.” (2) Wealth of Nations.” (3

    		•
  • Q : Illustrations of opportunity costs

    Illustrations of opportunity costs which you might or will have incurred would comprise: (i) severe injuries suffered within an accident since you failed to buckle up. (ii) the income you could earn when you were not in school. (iii) time spent studyi

    		•
  • Q : U.S. exports create a demand for

    True or false? “U.S. exports create a demand for foreign currencies; foreign imports of U.S. goods generate supplies of foreign currencies.”  Explain.

    		•
  • Q : Principle of comparative advantage When

    When Gene can make three pairs of cowboy boots per week or one saddle whereas Roy can make either two pairs of boots or two saddles, Gene will form boots whereas Roy makes saddles according to the: (i) Law of Occam’s Razor. (ii) Principle of comparative advantag

    		•
  • Q : International Trade & Globalization

    Question: 1.   Long-term Growth, International Trade & Globalization a.   In terms of understanding the importance of trade to an economy, the most impor

    		•
  • Q : Self-interest theory demonstration by

    The model of _____ was demonstrated by _____ along with the quote, “The loss of a small finger would remain the average European by sleeping which night, ... but, given he never observed them, he will snore with the most profound security over the loss of millio

    		•
  • Q : Why does the supply curve slope upward

    Explain the law of supply. Why does the supply curve slope upward?

    		•
  • Q : Summary of what can cause an increase

    Illustrate a summary of what can cause an increase in demand?

    		•
  • Q : Explain and give an illustration

    Explain and give an illustration of (a) the fallacy of composition; and (b) the “after this, therefore because of this” fallacy.  Why are cause-and-effect relationships difficult to isolate in the social sciences?

    		•