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Scenario 5 Two airlines, Star and Big, are the only two airlines operating flights between Collegeville and Bigtown. Assume they are the only airlines competing.

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Scenario 5 Two airlines, Star and Big, are the only two airlines operating flights between Collegeville and Bigtown. Assume they are the only airlines competing. Each airline can charge either a high price or a low price for a plane ticket. The payoff table shows their payoffs of the two possible choices they can make in each round of competition. The first entry of an ordered pair in this payoff table is for the Star Airline and the second entry is for Big Airline. Big Airline Hishpr-ce Star Airline High Price ($40 million, $40 million) ($0, $50 million) (550 million, $0) ($20 million, $20 million) Refer to Scenario 5. Which of the following is correct? O The dominant strategy for the Star Airline is a high price, and the one for the Big Airline is a low price. O The dominant strategy for the Star Airline is a low price, and the one for the Big Airline is a high price. O The dominant strategy for both airlines is a high price. . The dominant strategy for both airlines is a low price. Scenario 5 Two airlines, Star and Big, are the only two airlines operating ights between Collegeville and Bigtown. Assume they are the only airlines competing. Each airline can charge either a high price or a low price for a plane ticket. The payoff table shows their payoffs of the two possible choices they can make in each round of competition. The first entry of an ordered pair in this payoff table is for the Star Airline and the second entry is for Big Airline. Big Airline High price Low price Star Airline High Price ($40 million, 540 million) ($0, $50 million) (350 million, $0) ($20 million, $20 million) Refer to Scenario 5. What is the prot made by each airline in the Nash equilibrium when they compete once? . Each airline makes $20 million. 0 Each airline makes $40 million 0 The prot made by the Star Airline is $0 and the one made by the Big Airline is $50 million. 0 The prot made by the Star Airline is $50 million and the one made by the Big Airline is $0. Scenario 5 Two airlines, Star and Big, are the only two airlines operating ights between Collegeville and Bigtown. Assume they are the only airlines competing. Each airline can charge either a high price or a low price for a plane ticket. The payoff table shows their payoffs of the two possible choices they can make in each round of competition. The first entry of an ordered pair in this payoff table is for the Star Airline and the second entry is for Big Airline. Big Airline High price Low price Star Airline High Price $40 million, 540 million) ($0, $50 million) 550 million, $0) ($20 million, 520 million) Refer to Scenario 5. Suppose the two airlines compete with each other many times, and thus they play this game many times. The Star Airline tells Big Airline that it will charge a high price as long as the Big Airline charges a high price, but it will charge a low price forever if it detects the Big Airline charging a low price forjust one round. Which of the following is correct for the Big Airline payoffs in two consecutive rounds, assuming the Big Airline wants to maximize its total prot of competing with the Star Airline in two rounds? O $50 million in the rst round, and $20 million in the second round O $50 million in the rst round, and $0 million in the second round O $20 million for each of the two rounds 0 $40 million for each of the two rounds

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