Quantity (in gallons) Total Price Revenue $8 $0 50 7 350 100 600 150 5 750 200 800 250 3 750 300 2 600 350 1 350 400 Imagine a small town in a remote area where only two residents, Maria and Miguel, own dairies that produce milk. Their respective dairies are equal in size. Each week Maria and Miguel work together to decide how many gallons of milk to produce and what price to charge. To keep things simple, suppose that Maria and Miguel can produce as much milk as they want without cost so that the marginal cost is zero and there are no fixed costs. The weekly town demand schedule and total revenue schedule for milk is shown in the table above. Suppose the town enacts new antitrust laws that prohibit Maria and Miguel from operating as a cartel. Assuming that each producer can only modify quantity in increments of 50, which of the following is consistent with the Nash equilibrium for this scenario? Maria will charge a price of $5 for each gallon. Miguel and Maria will each sell 150 gallons per week. The Nash equilibrium quantity is 200. Milk will sell for $4 per gallon.

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
6
Quantity (in
gallons)
Total
Price
Revenue
$8
$0
50
7
350
100
600
150
750
200
4
800
250
3
750
300
2
600
350
1
350
400
Imagine a small town in a remote area where only two residents, Maria and Miguel, own dairies that produce milk. Their respective dairies are equal in size. Each
week Maria and Miguel work together to decide how many gallons of milk to produce and what price to charge. To keep things simple, suppose that Maria and
Miguel can produce as much milk as they want without cost so that the marginal cost is zero and there are no fixed costs. The weekly town demand schedule and
total revenue schedule for milk is shown in the table above. Suppose the town enacts new antitrust laws that prohibit Maria and Miguel from operating as a cartel.
Assuming that each producer can only modify quantity in increments of 50, which of the following is consistent with the Nash equilibrium for this scenario?
Maria will charge a price of $5 for each gallon.
Miguel and Maria will each sell 150 gallons per week.
The Nash equilibrium quantity is 200.
Milk will sell for $4 per gallon.
Transcribed Image Text:Quantity (in gallons) Total Price Revenue $8 $0 50 7 350 100 600 150 750 200 4 800 250 3 750 300 2 600 350 1 350 400 Imagine a small town in a remote area where only two residents, Maria and Miguel, own dairies that produce milk. Their respective dairies are equal in size. Each week Maria and Miguel work together to decide how many gallons of milk to produce and what price to charge. To keep things simple, suppose that Maria and Miguel can produce as much milk as they want without cost so that the marginal cost is zero and there are no fixed costs. The weekly town demand schedule and total revenue schedule for milk is shown in the table above. Suppose the town enacts new antitrust laws that prohibit Maria and Miguel from operating as a cartel. Assuming that each producer can only modify quantity in increments of 50, which of the following is consistent with the Nash equilibrium for this scenario? Maria will charge a price of $5 for each gallon. Miguel and Maria will each sell 150 gallons per week. The Nash equilibrium quantity is 200. Milk will sell for $4 per gallon.
Samsung Expensive
Cheap
Apple
Expensive Cheap
2,6
3,3
4,4
6,2
Apple and Samsung control the majority of the Smart Phones. Suppose the diagram above represents their strategic options, either to offer an expensive or a
cheap phone in the market. If both firms offer an expensive phone, they will each earn 4 billion dollars. If Samsung offers a cheap phone, while Apple offers only
an expensive phone, Samsung will earn $6 billion and Apple will earn $2 billion, and vice versa. If they both offer a cheap phone, they will each earn $3 billion.
What is each firm's dominant strategy?
The dominant strategy for Apple is to offer an expensive phone, but Samsung does not have a dominant strategy.
The dominant strategy for Apple is to offer a cheap phone, but Samsung does not have a dominant strategy.
The dominant strategy for both firms is to offer a cheap phone.
The dominant strategy for both firms is to offer an expensive phone.
O O O O
Transcribed Image Text:Samsung Expensive Cheap Apple Expensive Cheap 2,6 3,3 4,4 6,2 Apple and Samsung control the majority of the Smart Phones. Suppose the diagram above represents their strategic options, either to offer an expensive or a cheap phone in the market. If both firms offer an expensive phone, they will each earn 4 billion dollars. If Samsung offers a cheap phone, while Apple offers only an expensive phone, Samsung will earn $6 billion and Apple will earn $2 billion, and vice versa. If they both offer a cheap phone, they will each earn $3 billion. What is each firm's dominant strategy? The dominant strategy for Apple is to offer an expensive phone, but Samsung does not have a dominant strategy. The dominant strategy for Apple is to offer a cheap phone, but Samsung does not have a dominant strategy. The dominant strategy for both firms is to offer a cheap phone. The dominant strategy for both firms is to offer an expensive phone. O O O O
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