Question 3 (Chapter 13) Two firms at the St. Louis airport have franchises to carry passengers to and from hotels in downtown St. Louis. These two firms, Metro Limo and United Limo, operate nine passenger vans. These duopolists cannot compete with price, but they can compete through advertising. Their payoff matrix is below: United Limo Increase Don't Increase Advertising Advertising Metro Limo Increase Advertising Don't Increase 25, 15 30, 0 Advertising 15, 20 40, 5 3.1 Does each firm have a dominant strategy? If so, explain what that strategy is. 3.2 What is the Nash equilibrium? Explain where the Nash equilibrium occurs in the payoff matrix.
Question 3 (Chapter 13) Two firms at the St. Louis airport have franchises to carry passengers to and from hotels in downtown St. Louis. These two firms, Metro Limo and United Limo, operate nine passenger vans. These duopolists cannot compete with price, but they can compete through advertising. Their payoff matrix is below: United Limo Increase Don't Increase Advertising Advertising Metro Limo Increase Advertising Don't Increase 25, 15 30, 0 Advertising 15, 20 40, 5 3.1 Does each firm have a dominant strategy? If so, explain what that strategy is. 3.2 What is the Nash equilibrium? Explain where the Nash equilibrium occurs in the payoff matrix.
Chapter1: Making Economics Decisions
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Transcribed Image Text:Question 3 (Chapter 13)
Two firms at the St. Louis airport have franchises to carry passengers to and from
hotels in downtown St. Louis. These two firms, Metro Limo and United Limo, operate
nine passenger vans. These duopolists cannot compete with price, but they can
compete through advertising.
Their payoff matrix is below:
United Limo
Increase
Don't Increase
Advertising
Advertising
Metro Limo
Increase
Advertising
Don't Increase
25, 15
30, 0
Advertising
15, 20
40, 5
3.1
Does each firm have a dominant strategy? If so, explain what that strategy is.
3.2
What is the Nash equilibrium? Explain where the Nash equilibrium occurs in the
payoff matrix.
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