Part III: Game Theory in the Skies Two rival manufactures of aircraft, HotAir an
ID: 2596097 • Letter: P
Question
Part III: Game Theory in the Skies Two rival manufactures of aircraft, HotAir and CanduAir, are considering the production of a new generation of small passenger jets, 50- seat planes versus 80 seat-planes, for the regional commercial air travel market. Their projected annual profits(in millions of S) from the sales of their planes to airlines serving this market are as follows: If both firms produce the 80-seat plane, profits would be $330 for HotAir, and $240 for CanduAir. If both firms choose the 50-seat plane, profits would be $340 for HotAir, and $220 for CanduAir. If HotAir produces the 80-seat plane and CanduAir goes with the 50-seat one, profits would be $310 for HotAir, and $260 for CanduAir. Lastly, If HotAir goes with the 50- seat plane and CanduAir produces the 80-seat one, profits would be $400 for HotAir, and $320 for CanduAir Present this problem in the form of a Game theory matrix. What is the dominant strategy, if any for HottAir? What about for CanduAir,if one exists? What would the profits for each company be under a Nash Equilibrium solution, if such solution exists? 1. 2. 3.Explanation / Answer
(a) Game Theory Matrix
(b) Dominant Strategy for Hotair is to go for 50 seat plan for itself and 80 seat plan for CanduAir.
Company 80 seat plan 50 seat plan HotAir (330,310) (340,400) CanduAir (240,320) (220,260)