Firm 2 Low Price Low Price 2 Firm 1 0 High Price 7 1 2 High Price 0 6 a. Does either firm have a dominant strategy? Does this game have a unique, pure-strategy Nash equilibrium? Identify all pure and mixed-strategy Nash equilibria. b. How would your answers change if Firm 1 gets 5 instead of 7 when it chooses a low price and Firm 2 chooses a high price? 6

Firm 2 Low Price Low Price 2 Firm 1 0 High Price 7 1 2 High Price 0 6 a. Does either firm have a dominant strategy? Does this game have a unique, pure-strategy Nash equilibrium? Identify all pure and mixed-strategy Nash equilibria. b. How would your answers change if Firm 1 gets 5 instead of 7 when it chooses a low price and Firm 2 chooses a high price? 6

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

Please help me this is the completed question

2. Two firms face the following profit matrix:
Firm 2
Low Price
Low Price
2
Firm 1
0
7
High Price
1
2
b. How would your answers change if Firm 1 gets 5 instead of 7 when it chooses a low price
and Firm 2 chooses a high price?
16
High Price
0
6
a. Does either firm have a dominant strategy? Does this game have a unique, pure-strategy Nash
equilibrium? Identify all pure and mixed-strategy Nash equilibria.

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Step 1: Nash equilibrium:

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Step 2: Part a Dominant strategy

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Step 3: Part a pure strategy:

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Step 4: Part a mixed strategy:

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Step 5: Part b Dominant strategy:

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Step 6: Part b pure strategy:

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Step 7: Part b mixed strategy:

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