Answered: Firm 1 Low Medium High 46.12 55.3 45.69…

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

We can see from the payoff matrix that there are no pure strategy Nash equilibrium in this game because at least one firm would always have an incentive to change its behavior. From Nash's theorem, we know there must be at least one Nash equilibrium so there must be a mixed strategy Nash equilibrium for this game.

Find the mixed strategy Nash equilibrium by first deleting all dominated strategies in the game

What's the expected payoff to Firm 2 in the equilibrium?

Firm 1
Low
Medium
High
46.12
55.3
45.69
Low
24.03
36.07
48.43
75.18
61.32
57.78
Firm 2
Medium
13.54
41.47
41.47
93.83
72.76
84.06
High
2.99
17.37
23.09

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