# Managerial Economics

1. Nash equilibrium

is where one player maximizes his payoff and the other doesn't. is where each player maximizes his own payoff given the action of the other player. is where both players are maximizing their total payoff.

is a unique prediction of the likely out-come of a game.

Use the following to answer Questions 2–4: Consider the following information for a simultaneous move game: Two discount stores (mega-store and superstore) are interested in expanding their market share through advertising. The table below depicts the strategic outcomes (profits) of both stores with and without advertising. Payoffs for Megastore are in black.

2. The Nash equilibrium for both stores is

for Megastore to advertise and for Superstore to advertise.

for Megastore to advertise and for Superstore not to advertise. for Megastore not to advertise and for Superstore to advertise. for Megastore not to advertise and for Superstore not to advertise. 3. When the game does reach the Nash Equilibrium, the payoffs for both stores will be Megastore $95 and Superstore $80.

Megastore $305 and Superstore $55.

Megastore $65 and Superstore $285.

Megastore $165 and Superstore $115.

4. If collusion were not illegal, then it would be more optimal for Megastore to advertise and for Superstore to advertise.

for Megastore to advertise and for Superstore not to advertise. for Megastore not to advertise and for Superstore to advertise. for Megastore not to advertise and for Superstore not to advertise. 6. You, a real-estate developer, own a piece of land in Nassau, Bahamas, next to an equal-size piece of land owned by a competitor. Both of you have the choice of building a casino or a hotel. Your payoffs are as follows:

How much is it worth to you to get your casino building permit first? $2 million

$3 million

$15 million

$17 million

7. To Vote or Not to Vote

Mr. and Mrs. Ward typically vote oppositely in elections and so their votes “cancel each other out.” They each gain two...

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