1. What is a Nash equilibrium? And use your definition to identify and explain in full, all the Nash equilibrium strategy pairs and their payoffs in this game. 2. Suppose that Blue can publish its prices for the year before Red. Draw a diagram of the sequential game in extensive form showing and labelling clearly all three subgames. What is the outcome of the game if both players are rational and fully informed, and both reason using backward induction? 3. Would the outcome of the game change if Red published its prices first? Draw a suitable diagram showing all three subgames and explain your answer in full.
1. What is a Nash equilibrium? And use your definition to identify and explain in full, all the Nash equilibrium strategy pairs and their payoffs in this game. 2. Suppose that Blue can publish its prices for the year before Red. Draw a diagram of the sequential game in extensive form showing and labelling clearly all three subgames. What is the outcome of the game if both players are rational and fully informed, and both reason using backward induction? 3. Would the outcome of the game change if Red published its prices first? Draw a suitable diagram showing all three subgames and explain your answer in full.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Q1, Q2, Q3 please - Economics
Transcribed Image Text:Vaccinex is a new, generic pharmaceutical product sold by Blue and Red. Both are considering
their pricing decisions for the next year. Payoffs under different combinations of decisions are as
follows:
If both Blue and Red price high, both will receive profits of £3m in the coming year.
If Blue prices high and Red prices low, Blue will receive profits of £0.7m and Red will receive
profits of £6m.
If Blue prices low and Red prices high, Blue receive profits of £5m and Red will receive profits
of £2m.
If both Blue and Red price low, both will receive profits of £0.1m.
1.
What is a Nash equilibrium? And use your definition to identify and explain in full,
all the Nash equilibrium strategy pairs and their payoffs in this game.
2.
Suppose that Blue can publish its prices for the year before Red. Draw a diagram
of the sequential game in extensive form showing and labelling clearly all three
subgames. What is the outcome of the game if both players are rational and fully
informed, and both reason using backward induction?
3. Would the outcome of the game change if Red published its prices first? Draw a
suitable diagram showing all three subgames and explain your answer in full.
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