Question

Let two oil firms, A and B, in a duopoly be choosing their production decisions. For simplicity, assume they can choose two production levels: HI and LO. If both firms chooose LO, they each earn $3 billion. If both firms choose HI, they each earn $2 billion. If one firm chooses HI while the other chooses low, the HI firm earns $4 billion and the LO firm earns $1 billion. What is the Nash Equilibrium outcome?

		A chooses LO, B chooses LO
		A chooses HI, B chooses LO
		A chooses LO, B chooses HI
		A chooses HI, B chooses HI

Answer 1

Page No Q) From given information, we have firm B. LO HI ul 2,2 4,1 firm A LO T, 3,3 Now, if firm A choose to choose HL, then form B chooses. HL gets high payoff of $ 2 we but 2. aus it bar on SO a 44. Evsem A choose Lo, then furm B chevses Hi it gets high pay from H1 of $4 , so. we but bar on If firm B choose AL, then. form A choose as it get high payoff from HL we put a bar on al HL So Lo then form B choose of form B choose gives high pay off of & 4 from put a HI as HL so bar on u As HL, HI both has bar so it is the Nash equilibrium Outcome which makes both the form better off Nash equilibrium outcome D) A chooses Hi B chooses HI V is. CS Scanned with CamScanner