Bud and Wise are the only two producers of aniseed beer, a New Age product designed to displace root beer. Bud and Wise are trying to figure out how much of this new beer to produce. They know: (i) If they both produce 10,000 litres a day, they will make the maximum attainable joint economic profit of $200,000 a day, or $100,000 a day each. (ii) If either firm produces 20,000 litres a day while the other produces 10,000 litres a day, the one that produces 20,000 litres will make an economic profit of $150,000 and the other will incur an economic loss of $50,000. (iii) If both produce 20,000 litres a day, each firm will make zero economic profit. Construct a payoff matrix for the game that Bud and Wise must play. Find the Nash equilibrium of the game that Bud and Wise play.

Bud and Wise are the only two producers of aniseed beer, a New Age product designed to displace root beer. Bud and Wise are trying to figure out how much of this new beer to produce. They know: (i) If they both produce 10,000 litres a day, they will make the maximum attainable joint economic profit of $200,000 a day, or $100,000 a day each. (ii) If either firm produces 20,000 litres a day while the other produces 10,000 litres a day, the one that produces 20,000 litres will make an economic profit of $150,000 and the other will incur an economic loss of $50,000. (iii) If both produce 20,000 litres a day, each firm will make zero economic profit. Construct a payoff matrix for the game that Bud and Wise must play. Find the Nash equilibrium of the game that Bud and Wise play.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter13: best-practice Tactics: Game Theory

Section: Chapter Questions

Problem 12E

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