3. (4) Two top shoe design houses, Vivace, and Mortissimo, can play it safe in the fall shows in Milan and introduce variations on last year's themes; buyers will accept these because they were successful before. Or they can take a chance and introduce something more daring. The firms compete with each other (no collusion) and their choices concerning shoe design affect each others' profits. The payoffs for the "take a chance" or "play it safe" strategies are shown below: Payoffs: Profits Vivace Mortissimo Strategy Take a chance Play it safe Take a chance $3, $3 $2, $7 Play it safe $7, $2 $6, $6 a) Mortissimo's dominant strategy is: Play it safe Take a chance Mortisimo, does not have a dominant strategy Check any of the outcomes that represent a Nash equilibrium: b) Upper left Upper right Lower left Lower right c) Going back to the original situation, suppose that the Italian government imposes a tax of $2 on any firm that takes a chance, and assume for simplicity that any firm taking a chance would absorb the full $2, lowering payoffs, rather than passing it on to customers. Are the firms better off or worse off? Explain. (Hint: consider the payoffs netted for the tax.)
3. (4) Two top shoe design houses, Vivace, and Mortissimo, can play it safe in the fall shows in Milan and introduce variations on last year's themes; buyers will accept these because they were successful before. Or they can take a chance and introduce something more daring. The firms compete with each other (no collusion) and their choices concerning shoe design affect each others' profits. The payoffs for the "take a chance" or "play it safe" strategies are shown below: Payoffs: Profits Vivace Mortissimo Strategy Take a chance Play it safe Take a chance $3, $3 $2, $7 Play it safe $7, $2 $6, $6 a) Mortissimo's dominant strategy is: Play it safe Take a chance Mortisimo, does not have a dominant strategy Check any of the outcomes that represent a Nash equilibrium: b) Upper left Upper right Lower left Lower right c) Going back to the original situation, suppose that the Italian government imposes a tax of $2 on any firm that takes a chance, and assume for simplicity that any firm taking a chance would absorb the full $2, lowering payoffs, rather than passing it on to customers. Are the firms better off or worse off? Explain. (Hint: consider the payoffs netted for the tax.)
Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter17: Oligopoly
Section: Chapter Questions
Problem 9PA
Related questions
Question
Transcribed Image Text:3.
(4)
Two top shoe design houses, Vivace, and Mortissimo, can play it safe in the fall shows in
Milan and introduce variations on last year's themes; buyers will accept these because they were successful
before. Or they can take a chance and introduce something more daring. The firms compete with each
other (no collusion) and their choices concerning shoe design affect each others' profits. The payoffs for
the "take a chance" or "play it safe" strategies are shown below:
Payoffs: Profits
Vivace
Mortissimo
Strategy
Take a chance
Play it safe
Take a chance
$3, $3
$2, $7
Play it safe
$7, $2
$6, $6
a)
Mortissimo's dominant strategy is:
Play it safe
Take a chance
Mortisimo, does not have a dominant strategy
Check any of the outcomes that represent a Nash equilibrium:
b)
Upper left
Upper right
Lower left
Lower right
c)
Going back to the original situation, suppose that the Italian government imposes a tax of $2 on any
firm that takes a chance, and assume for simplicity that any firm taking a chance would absorb the full $2,
lowering payoffs, rather than passing it on to customers. Are the firms better off or worse off? Explain.
(Hint: consider the payoffs netted for the tax.)
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