Firm 2 Lower Prices Do Not Lower Prices Lower Prices Firm 1: $1000 Profit Firm 2: $1000 Profit Firm 1: $0 Profit Firm 2: $3000 Profit Firm 1: $5000 Profit Firm 2: $0 Profit Firm 1: $2000 Profit Firm 2: $2000 Profit Firm 1 Do Not Lower Prices (a) If firm 1 lowers it price, what will firm 2 choose to do? (b) If firm 2 lowers it price, what will firm 2 choose to do? (c) Of the four outcomes on this payoff matrix, which outcome is likeliest to occur? (d) Is your answer to the previous question the best outcome for both firms? Why will it be difficult for these firms to arrive at the best mutual outcome?

Firm 2 Lower Prices Do Not Lower Prices Lower Prices Firm 1: $1000 Profit Firm 2: $1000 Profit Firm 1: $0 Profit Firm 2: $3000 Profit Firm 1: $5000 Profit Firm 2: $0 Profit Firm 1: $2000 Profit Firm 2: $2000 Profit Firm 1 Do Not Lower Prices (a) If firm 1 lowers it price, what will firm 2 choose to do? (b) If firm 2 lowers it price, what will firm 2 choose to do? (c) Of the four outcomes on this payoff matrix, which outcome is likeliest to occur? (d) Is your answer to the previous question the best outcome for both firms? Why will it be difficult for these firms to arrive at the best mutual outcome?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter14: Monopoly

Section: Chapter Questions

Problem 14.13P

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