Q1. A and B are the only two sandwich shops serving in a small town. Each shop can choose to set a high price or a low price for sandwiches. The payoff matrix below shows the daily profit for each combination of prices that the two shops could choose. The first entry shows A's profits, and the second entry shows B's profits. Assuming that both shops know the information shown in the matrix. A High Price Low Price B High Price ($105, $110) ($120, $80) Low Price ($40, $130) ($75, $75) a. Does each shop have a dominant strategy to set a high price, a dominant strategy to set a low price, or does it have no dominant strategy? b. If the two shops do not cooperate on setting prices, what will be the profit for each shop?
Q1. A and B are the only two sandwich shops serving in a small town. Each shop can choose to set a high price or a low price for sandwiches. The payoff matrix below shows the daily profit for each combination of prices that the two shops could choose. The first entry shows A's profits, and the second entry shows B's profits. Assuming that both shops know the information shown in the matrix. A High Price Low Price B High Price ($105, $110) ($120, $80) Low Price ($40, $130) ($75, $75) a. Does each shop have a dominant strategy to set a high price, a dominant strategy to set a low price, or does it have no dominant strategy? b. If the two shops do not cooperate on setting prices, what will be the profit for each shop?
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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