Consider a small town that has two grocery stores from whichresidents can choose

Question

Consider a small town that has two grocery stores from whichresidents can choose to buy a gallon of milk. The store owners eachmust make a decision to set a high price on milk or a low price onmilk. The payoff table provided shows profit per week. The profitin each cell is shown as (Store 1, Store 2) 1. If grocery Store 2 sets a low price, what price shouldgrocery Store 1 set? And what will grocery Store 1's payoffequal?    a. Low price, $500    b. High price, $800    c. Low price, $100    d. High price, $100 2. If grocery Store 2 sets a high price, what price shouldgrocery Store 1 set? And what will grocery Store 1's payoffequal?    a. Low price, $800    b. High price, $650    c. Low price, $100    d. High price, $800 3. If grocery Store 1 sets a low price, what price shouldgrocery Store 2 set? And what will grocery Store 2's payoffequal?    a. Low price, $500    b. High price, $800    c. Low price, $100    d. High price, $650 4. If grocery Store 1 sets a high price, what price shouldgrocery Store 2 set? And what will grocery Store 2's payoffequal?    a. Low price, $800    b. High price, $100    c. Low price, $500    d. High price, $650 5. What is grocery Store 1's dominant strategy?    a. Grocery Store 1 does not have a dominantstrategy.    b. Grocery Store 1 should always set a lowprice.    c. Grocery Store 1 should always set a highprice.    d. Grocery Store 1 should set a low pricewhen grocery Store 2 sets a low price, and grocery Store 1 shouldset a high price when grocery Store 2 sets a high price. 6. What is grocery Store 2's dominant strategy?    a. Grocery Store 2 doesnot have a dominantstrategy.    b. Grocery Store 2 should always set a lowprice.    c. Grocery Store 2 should always set a highprice.    d. Grocery Store 2 should set a low pricewhen grocery Store 1 sets a low price, and grocery Store 2should set a high price when grocery Store 1 sets a highprice. 7. What is Nash Equilibrium of this price-setting game?    a. Grocery Store 1: Low Price       Grocery Store 2: LowPrice    b. Grocery Store 1: Low Price       Grocery Store 2: HighPrice    c. Grocery Store 1: High Price       Grocery Store 2: LowPrice    d. Grocery Store 1: High Price       Grocery Store 2: HighPrice

Explanation / Answer

1) a- Low price , $ 500

2)  a- Low price , $ 800

3)  a- Low price , $ 500

4)  a- Low price , $ 800

5) b - Grocery Store 1 should always set a lowprice (no matter what Grocery store 2 does, store 1 would earn a higher payoff using this strategy)

6) b- Grocery Store 2 should always set a lowprice

7) a-

Grocery Store 1: Low Price

      Grocery Store 2: LowPrice

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