Suppose a town only has two petrol stations, United and BP. Each could choose tocharge a high price or low price, as shown in the matrix below.ВРBP charges a low price:BP has low profit;UnitedBP charges a high price:BP has no profit;United has high profitUnited charges aUnited low price:haslowprofitВРUnited charges ahigh price:hasBP has average profit;Unitedhigh profit;Unitedhasnohas average profitprofit(a) What is the dominant strategy for the above matrix (i.e., a Nashequilibrium)? Explain briefly(b) If the two petrol stations could collude, what would be the likelystrategy? Explain briefly.(c) Briefly explain the principles of the 'kinked' demand curve by using an example such aspricing a product by the two supermarket giants.

An oligopoly is a market structure where a small number of firms dominate the market. The existance…

Suppose a town only has two petrol stations, United and BP. Each could choose to charge a high price or low price, as shown in the matrix below. ВР BP charges a low price: BP has low profit; United has low profit ВР BP charges a high price: BP has no profit; United has high profit United charges a United low price: United charges a high price: has BP has average profit; United has average profit high profit; United has no profit (a) What is the dominant strategy for the above matrix (i.e., a Nash equilibrium)? Explain briefly (b) If the two petrol stations could collude, what would be the likely strategy? Explain briefly. (c) Briefly explain the principles of the 'kinked' demand curve by using an example such as pricing a product by the two supermarket giants.

Suppose a town only has two petrol stations, United and BP. Each could choose to charge a high price or low price, as shown in the matrix below. ВР BP charges a low price: BP has low profit; United has low profit ВР BP charges a high price: BP has no profit; United has high profit United charges a United low price: United charges a high price: has BP has average profit; United has average profit high profit; United has no profit (a) What is the dominant strategy for the above matrix (i.e., a Nash equilibrium)? Explain briefly (b) If the two petrol stations could collude, what would be the likely strategy? Explain briefly. (c) Briefly explain the principles of the 'kinked' demand curve by using an example such as pricing a product by the two supermarket giants.

Principles of Microeconomics (MindTap Course List)

8th Edition

ISBN:9781305971493

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: Oligopoly

Section: Chapter Questions

Problem 9PA

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