managerial economics

Display all calculations and briefly explain your answers.
Question3
Suppose there are two firms, called A and B, which compete with each other in the market for a unique product. Each firm can charge one two prices for this product: A high price p or a low price p. If both firms charge the high price p, they split total market profits of 20. If they both charge the low price p, total market profits fall to 8. if firm A charges the high price p but firm B undercuts its rival by charging the low price p, total market profits fall to 15, but more people buy from firm B because it has a lower price, so it gains 80% of total market profits. The outcome where firm A undercuts firm B is symmetric, with firm A gaining 80% of market profits.

a)Describe the four elements of this game.
b)Set up a payoff table, and use it to solve for the Nash equilibrium.
c)Does either fir have a dominant strategy?

managerial economics

sennachan

Joined September 2008

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