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##### ECON 661, Managerial Economics Homework Assignment 5

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Question;ECON 661, Managerial Economics;Homework Assignment 5;Due Date: Friday, December 5;Please;answer all questions.;1. Suppose;Delta Airlines and United Airlines are the only carriers that serve the Miami;?Cincinnati market. Ticket sales of both carriers are affected by their;advertising decisions.;The resulting;increases in sales for the two carriers are given in the following table;Delta Airlines;United Airlines;Delta;Sales;($000?s);United;Sales;($000?s);Raise;Ad Spending;Raise;Ad Spending;400;300;Raise;Ad Spending;Leave;Ad Spending the Same;500;400;Leave;Ad Spending the Same;Raise;Ad Spending;300;800;Leave;Ad Spending the Same;Leave;Ad Spending the Same;200;500;Consider;that the two companies make their decisions simultaneously;a. Construct a payoff table (by completing;the table below) to show the sales (in dollars) each;company would earn in each of the four decision situations (Do it in the manner it is done in the textbook does it). (10;pts);United?s;Choice;Delta?s Choice;Raise Ad Spending;Leave Ad Spending the Same;Raise Ad Spending;Leave Ad Spending the Same;b. Does Delta;have a dominated strategy? Why or why not? If it has, identify the strategy. Does United have a dominated strategy? Why or;why not? If it has, identify the strategy. Always justify your answer. (15;pts);c. Does Delta;have a dominant strategy? Why or why not? If it has, identify the;strategy. Does United have a dominant strategy?;Why or why not? If it has, identify the strategy. Always justify your answer. (15 pts);d. Locate the;likely outcome of this advertising decision problem. Justify your answer.;(15 pts);e. Is the;likely outcome a Nash equilibrium? Explain why or why not. (15;pts);f. Is the;likely outcome strategically stable? Explain why or why not. (10 pts);2. Suppose;United chooses and announces its ad expenditure (budget) before Delta does.;a. What is the Nash equilibrium in;this game? Explain how you arrived at your answer.;(Constructing a diagram (game tree);that shows the structure and payoffs of the game in answering this question is recommended but not required) (10 pts);b. Is there a first- mover advantage or;first-mover disadvantage in this game? Explain why?;(10 pts)

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