Two firms operating in the same market must decide between charging a high price or a low price. The Payoffs are as below. Firm A's profit is listed before the comma, B's profit after the comma. Firm B Firm A Low Price High Price Low Price 16, 17 7, 28 High Price 28, 7 22, 22 If each firm tries to choose a price that is optimal, regardless of the other firm's price, what is the Nash equilibrium? Does either firm have a dominant strategy?

Two firms operating in the same market must decide between charging a high price or a low price. The Payoffs are as below. Firm A's profit is listed before the comma, B's profit after the comma. Firm B Firm A Low Price High Price Low Price 16, 17 7, 28 High Price 28, 7 22, 22 If each firm tries to choose a price that is optimal, regardless of the other firm's price, what is the Nash equilibrium? Does either firm have a dominant strategy?

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

Problem 4SCQ: Sometimes oligopolies in the same industry are very different in size. Suppose we have a duopoly...

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Sometimes oligopolies in the same industry are very different in size. Suppose we have a duopoly where one firm (Film A) is large and the other film (Film B) is small, as the prisoners dilemma box in Table 10.4 shows. Assuming that both films know the payoffs, what is the likely outcome in this case?
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Two firms produce the samecommodity, both with zero cost. The demand for this commodity is D(P) = 100−P.The two firms can each produce at most 50 units. They compete on price andrationing is efficient: if pi < pj then the demand that j faces is Dj(p) = D(pj) − qi,where qi is the quantity supplied by firm i. That is, the lower price firm gets to sellfirst. Is the price list p = (p1, p2) = (0, 0) a Nash equilibrium? Prove your assertion.
1. Two firms (A and B) play a competition game (i.e. Cournot) in which they can choose any Qi from 0 to ¥. The firms have the same cost functions C(Qi) = 10Qi + 0.5Qi2, and thus MCi = 10 + Qi. They face a market demand curve of P = 220 – (QA + QB). a. Assume firm A chooses quantity first. Frim B observes this choice and then chooses its own quantity. What is Frim B's profit as a function of QA and QB? b. Firm B has MRB = 220 – 2QB – QA. What is firm B’s best response to an arbitrary QA selected by firm A? c. Given that firm A expects firm B’s best response, what is firm A’s profit as a function of QA? (Hint: the only unknown variable in the profit function should be QA) d. Firm A has MRA = 150 – 4QA/3. What are the equilibrium QA and QB selected in this game? e. What is the equilibrium price, and how much profit does each firm collect?
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