Question

6. Using a payoff matrix to determine the equilibrium outcome Suppose there are only two firms that sell smartphones: Flashfone and Pictech. The following payoff matrix shows the profit (in millions of dollars) each company will earn, depending on whether it sets a high or low price for its phones. Pictech Pricing High 10, 10 16,5 High Low Low 5,16 7,7 Flashfone Pricing For example, the lower-left cell shows that if Flashfone prices low and Pictech prices high, Flashfone will earn a profit of $16 million, and Pictech will earn a profit of $5 million. Assume this is a simultaneous game and that Flashfone and Pictech are both profit-maximizing firms. price, and if Flashfone prices low, Pictech will make more profit if it If Flashfone prices high, Pictech will make more profit if it chooses a chooses a price. price, and if Pictech prices low, Flashfone will make more profit if it If Pictech prices high, Flashfone will make more profit if it chooses a chooses a price.
Drop Down Menu Options:

1) high/low

2) high/low

3) high/low

4) high/low

5) is/is not

Answer 1

1) If Flashfone prices high, Pitch will make more profit if it chooses a Low price because it will give him a payoff of $ 16 which is greater than $ 10.

2) Low price because the payoff of $ 7 is greater than the payoff of $ 6.

3) If Pictech prices high, Flashfone will make more profit if it chooses a Low price because it will give him payoff of 16 which is greater than 10.

4) Low price because the payoff of $ 7 is greater than the payoff of $ 5.

5) Pricing low is the dominant strategy for both.

6) Both Flashfone and Pictech will choose a low price.

7) False. Prisonner’s dilemma is there.