5. Suppose two firms A and B must decide whether to charge low or high price...
5. Suppose two firms A and B must decide whether to charge low or high price for a product. If both firms charge high price each firm earns a profit of 10. If both firms charge a low price, each firm earns zero profit. If firm A charges a low price while firm B charges a high price, firm A earns a profit of 50 while firm B has a loss of 10. If firm B charges a low price while firm A charges a high price, firm B earns a profit of 50 while firm A has a loss of 10.
- Use the information to construct a payoff matrix for firms A and B.
- Does firm A have a dominant strategy?
- Does firm B have a dominant strategy?
- What is the Nash Equilibrium for this game?
Explain your answers.
Homework Answers
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firms A and B when there are two strategies facing each firm: (1)
charge a low price, or (2) charge a high price.
a) why the equilibrium in this game (played once) is a dominant
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?
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