fast please 4.In the game shown in Table 12.2, the firms' Part 1 A.both have a dominant strategy of choosing a high price. B.do not have a dominant strategy. C.both have a dominant strategy of choosing a low price. D.will alternate between high price and low price strategies. Firm 1High PriceLow PriceFirm 2High PriceFirm 1earns $100;Firm 2earns $100Firm 1earns $150;Firm 2earns $25Table 12.2Low PriceFirm 1earns $25; Firm2 earns $150Firm 1earns $50; Firm2 earns $50

Dominant strategy is the optimal option that any player chooses regardless of what the other player is choosing. In the given question, the firms will choose the strategy that is better for them, no matter what the opponent firm is choosing. If in the payoff matrix, optimal choices for the firm end up in the same row/column then it is said to have a dominant strategy.Given the matrix,Now to analyse if FIRM 1 has a dominant strategy or not, consider the underlined revenue, Firm 1 chooses $150 and $50 in both options, as $150>$100 and $50>$25, As it is evident from below matrix, both optimal choices lie in the same row. This implies Firm 1 has a dominant strategy.FIRM 2HPLPFIRM 1HP>$100, $100$25, $150LP$150, $25$50, $50Now to analyse if FIRM 2 has a dominant strategy or not, consider the underlined revenue, Firm 2 chooses $150 and $50 in both options, as $150>$100 and $50>$25, As it is evident from below matrix, both optimal choices lie in the same column. This implies Firm 2 also has a dominant strategy.FIRM 2HPLPFIRM 1HP$100, $100$25, $150LP$150, $25$50, $50Now find Nash equilibrium:It is when Firm 1 and Firm 2 both choose low prices. FIRM 2HPLPFIRM 1HP$100, $100$25, $150LP$150, $25$50, $50The correct option is option C: Both have a dominant strategy of choosing a low price.

Answered: fast please 4. In the game shown in…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Part 1

both have a dominant strategy of choosing a high price.

do not have a dominant strategy.

both have a dominant strategy of choosing a low price.

will alternate between high price and low price strategies.

Firm 1
High Price
Low Price
Firm 2
High Price
Firm 1
earns $100;
Firm 2
earns $100
Firm 1
earns $150;
Firm 2
earns $25
Table 12.2
Low Price
Firm 1
earns $25; Firm
2 earns $150
Firm 1
earns $50; Firm
2 earns $50

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