Suppose 2 gas stations must post their prices for regular gasoline at 6am each morning and cannot change their price during the day.Each gas station has a choice: charge a relatively “low” price or charge a relatively “high” price. The following shows their profit for the day of each gas station depending upon which price each gas station chooses: Gas Station B Low PriceHigh PriceGas Station ALow Price$2000, $900$500, $1500 High Price$1200, $1800$300, $2100Assume that this is a "one shot" game:Which strategy should Gas Station A choose? Is it a dominant strategy? Explain why or why not.Which strategy should Gas Station B choose? Is it a dominant strategy? Explain why or why notWhat is the outcome for each Gas Station? How much profits will each Gas Station earn? Explain.

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Answered: Suppose 2 gas stations must post their…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter10: Monopolistic Competition And Oligopoly

Section: Chapter Questions

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Suppose 2 gas stations must post their prices for regular gasoline at 6am each morning and cannot change their price during the day.

Each gas station has a choice: charge a relatively “low” price or charge a relatively “high” price. The following shows their profit for the day of each gas station depending upon which price each gas station chooses:

	Gas Station B
		Low Price	High Price
Gas Station A	Low Price	$2000, $900	$500, $1500
	High Price	$1200, $1800	$300, $2100

Assume that this is a "one shot" game:

Which strategy should Gas Station A choose? Is it a dominant strategy? Explain why or why not.
Which strategy should Gas Station B choose? Is it a dominant strategy? Explain why or why not
What is the outcome for each Gas Station? How much profits will each Gas Station earn? Explain.

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