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Q.6 Two players i.e. American Airlines and United Airlines have the choice of cutting fares by 50% or leave fares alone; - If both airlines cut fares., each airline's profit $400 million If neither airline cuts fares, each airline's profit S600 million If only one airline cuts its fares, its profit $800 million the other airline's profits $200 million Draw the payoff matrix; find the Nash equilibrium using prisoner's dilemma?10 Marks

Answer 1

1.) we first draw the payoff matrix using the given informationsolving the problem similarly as prisoner's dilemma, we see that (cut,cut) is the dominant strategy of this game and the payoff to both airlines is (400,400). The dominant strategy is found as what is the optimal strategy of a player given the action of other player. For e.g if united airlines (UA) cuts it fare, the optimal strategy for american airlines is also to cut fares, and if (UA) leaves it fare unchanged, still the optimal strategy for american airlines is to cut its fare. So the optimal strategy for american airlines is to cut the fares. same reasoning applies for united airlines optimal strategy to cut fares.

We first draw the payoff matrix using the given information united Airlines CUT LEAVE UNCHANGED American Airlines LEAVE UNCHANGED CUT (400, 400) (800, 200) (200, 800) (600, 600) solving the problem similarly as prisoner's dilemma, we see that (cut, cut) is the dominant strategy of this game and the payoff to both airlines is (400,400). The dominant strategy is found as what is the optimal strategy of a player given the action of other player. For e.g if united airlines (UA) cuts it fare, the optimal strategy for American airlines is also to cut fares, and if (UA) leaves it fare unchanged, still the optimal strategy for American airlines is to cut its fare. So the optimal strategy for American airlines is to cut the fares. same reasoning applies for united airlines optimal strategy to cut fares. The marginal product of labor (MPL) is the additional output produced when one more unit of labor is employed. and the value of marginal product is simply price * MPL \r\n L Q (Bushels of wheat f)

2.) The marginal product of labor (MPL) is the additional output produced when one more unit of labor is employed. and the value of marginal product is simply price * MPL