a Firm A and Firm B decide to launch their new products in the market. Each firm can choose to either sell the product at a high price (H) or a low price (L). The estimated payoff table is as follows: Firm B L H Firm A L (250, 150) (280, 130) H (140, 180) (270, 190) (Firm A's payoff is given before the comma, and Firm B's payoff is given after the comma.) i What are the dominant strategies (if any) for Firm A and Firm B respectively? ii What is the Nash equilibrium outcome, if any? Explain. ( iii If Firm A can decide on what strategy to use first, what will be the Nash equilibrium (if any) of this sequential game? Explain with the aid of a tree diagram. b Explain why the market of health insurance is less efficient with the presence of asymmetric information. (Assume the insured knows more about his/her health condition than the insurance provider.) a Firm A and Firm B decide to launch their new products in the market.Each firm can choose to either sell the product at a high price (H) or alow price (L). The estimated payoff table is as follows:Firm BLHFirm AL(250, 150)(280, 130)H(140, 180)(270, 190)(Firm A's payoff is given before the comma, and Firm B's payoff isgiven after the comma.)i What are the dominant strategies (if any) for Firm A and Firm Brespectively?ii What is the Nash equilibrium outcome, if any? Explain. (iii If Firm A can decide on what strategy to use first, what will bethe Nash equilibrium (if any) of this sequential game? Explainwith the aid of a tree diagram.b Explain why the market of health insurance is less efficient with thepresence of asymmetric information. (Assume the insured knowsmore about his/her health condition than the insurance provider.)

The objective of the question is to analyze the strategic interaction between two firms in a market…

Answered: a Firm A and Firm B decide to launch…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

a Firm A and Firm B decide to launch their new products in the market. Each firm can choose to either sell the product at a high price (H) or a low price (L). The estimated payoff table is as follows:

Firm B

Firm A

(250, 150)

(280, 130)

(140, 180)

(270, 190)

(Firm A's payoff is given before the comma, and Firm B's payoff is given after the comma.)

i What are the dominant strategies (if any) for Firm A and Firm B respectively?

ii What is the Nash equilibrium outcome, if any? Explain. (

iii If Firm A can decide on what strategy to use first, what will be the Nash equilibrium (if any) of this sequential game? Explain with the aid of a tree diagram.

b Explain why the market of health insurance is less efficient with the presence of asymmetric information. (Assume the insured knows more about his/her health condition than the insurance provider.)