c) If the game is played only once what is the equilibrium? Is it a dominant-strategy equilibrium? Explain. d) Is there a Nash equilibrium? Explain. What is the best outcome for either of the firms? Explain.
c) If the game is played only once what is the equilibrium? Is it a dominant-strategy equilibrium? Explain. d) Is there a Nash equilibrium? Explain. What is the best outcome for either of the firms? Explain.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Question 3
Suppose QM Phones and UCL Phones each develop their own versions of a new smartphone. The
new phones are different from the existing ones but each share similar functions and designs. The
firms are trying to decide on the price of their unique phones. If they both charge high price, QM
makes £6 million and UCL makes £5 million economic profits. If QM charges high price but UCL
charges low price, they make £3 million and £7 million respectively. If however QM charges low
price and UCL charges high price, they make £ £8 million and £1 million respectively. If both
charge low price, QM earns £4 million and UCL earns £3 million economic profits.
a) Describe the strategies in the game. Construct the payoff matrix.
b) Does QM have a dominant strategy. Does UCL have a dominant strategy? Explain.
c) If the game is played only once what is the equilibrium? Is it a dominant-strategy
equilibrium? Explain.
d) Is there a Nash equilibrium? Explain. What is the best outcome for either of the firms?
Explain.
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