Due 25th May 1200noon.10 points equivalent to 4% of the unitâ??s assessmentsThis question puts up
Due 25th May 12:00noon.10 points, equivalent to 4% of the unit’s assessmentsThis question puts up 4 different scenarios that two stores AllDay and SheepSkein arefacing. In each scenario they are the only two shops selling to the whole market.Represent each scenario in a normal form game and indicate the Pure Strategy NashEquilibrium(s). Explain.a. [2.5 points] In RemoteCity, AllDay and SheepSkein are each deciding whether to setup an online store or a physical store. If both set up an online store, each gets a profitof $35 million, if one sets up an online store while the other sets up a physical storethen the online store will earn a profit of $50 million and the physical store will earna profit of $40 million. If both set up a physical store they each get a profit of $30million. Online store earns higher profit because it is less costly to operate.b. [2.5 points] The situation is slightly different in MainCity where the rental forphysical store is very high. Here also AllDay and SheepSkein are each decidingwhether to set up an online store or a physical store. If both set up an online store,each gets a profit of $70 million, if one sets up an online store while the other sets upa physical store then the online store will earn a profit of $50 million and thephysical store will earn a profit of $20 million. If both set up a physical store theyeach get a profit of $15 million. Represent this in a normal form game and indicatethe Nash Equilibrium(s). Explain.c. [2.5 points] In the small fun township of ReflectedSoundOfUndergroundSpirits thetwo stores realised that only small physical stores will work. Their CEOs mettogether and decided to specialise their merchandise so that they can work the wholemarket together. However, the CEOs had consumed way too many alcohols duringthe meeting and next morning could not quite remember whether they had decided tospecialise in Liquor or Snacks. They were too ashamed to contact the other toconfirm. The people of the township drink a lot and snack a lot but they want toalways snack with the drinks and only drink if there are snacks to go with. If bothstores specialise in liquor or in snacks, they each have a loss of $1 million (nocustomers, fixed cost of setting up shop wasted). If one store specialises in liquor andthe other in snacks both get a profit of $2 million.d. [2.5 points] In the small city of Roulette there is no Internet and the only way to shopis in person. The city is so small, however, that only one shop can cater to the wholecity. AllDay and SheepSkein decide to play Rock Paper Scissor to decide if theywant to share the market aggressively as a Cournot duopoly or be the sole player inthe market. Rock beats Scissor, Scissor beat Paper and Paper beats Rock. If onewins, he gets a monopoly profit $20 million and the other gets zero. If they drawthey will share the market as a duopoly and each earn dupoly profit of $9 million.Please typewrite your answers and draw the matrices in MSWord or similar word processing software.Writing all of the assignment by hand and scanning it in is not appreciated – you should at least type inyour non-matrix parts of the answers. Save a copy of your assignment as a backup. Convert yourassignment into a pdf file and upload them in the Assessments > Week 12> Online Short Answer link onLMS. You can submit only once, so go over your work thoroughly before you pdf it and upload it.Marking Guide:For each scenario[2.5 points]Matrix form game layout with correctly indicated players, actions and payoffs and indicating theequilibrium/s with proper explanation will get full credit. 0.5 point deducted if any of theplayers/actions/payoffs are incorrect (if all incorrect 1.5 deducted). 1 point deducted if the equilibrium/sis/are incorrect. 1 point deducted if no logical explanation given for the equilibrium/s.Rubric:• Name: Online Short Answer 5 – Levels of Achievement Rubric• Description: This chart shows you the strengths and weaknesses of your attempt.Items WeakPart a 0 to 0.5 pointHas very little idea abouthow to represent thegame.Part b 0 to 0.5 pointHas very little idea abouthow to represent thegame.Part c 0 to 0.5 pointHas very little idea abouthow to represent thegame.Part d 0 to 0.5 pointHas very little idea abouthow to represent thegame.Levels of AchievementCompetent0.5 to 1.5 pointRepresented the game andattempted to identify theequilibrium, but made majormistakes in either the layout ofthe game or in identifyingequilibrium. Explanationweak.0.5 to 1.5 pointRepresented the game andattempted to identify theequilibrium, but made majormistakes in either the layout ofthe game or in identifyingequilibrium. Explanationweak.0.5 to 1.5 pointRepresented the game andattempted to identify theequilibrium, but made majormistakes in either the layout ofthe game or in identifyingequilibrium. Explanationweak.0.5 to 1.5 pointsRepresented the game andattempted to identify theequilibrium, but made majormistakes in either the layout ofthe game or in identifyingequilibrium. Explanationweak.Proficient1.5 to 2.5 pointsCorrect representationof the game andequilibrium with goodexplanation; minormistakes, if any.1.5 to 2.5 pointsCorrect representationof the game andequilibrium with goodexplanation; minormistakes, if any.1.5 to 2.5 pointsCorrect representationof the game andequilibrium with goodexplanation; minormistakes, if any.1.5 to 2.5 pointsCorrect representationof the game andequilibrium with goodexplanation; minormistakes, if any.
