Suppose that each company can charge either a high price for tickets or a low price. If one company charges $300, it earns low profit if the other company also charges $300 and high profit if the other company charges $600. On the other hand, if the company charges $600, it earns very low profit if the other company charges $300 and medium profit if the other company also charges $600. a. Draw the decision box for this game. b. What is the Nash equilibrium in this game? Explain. c. Is there an outcome that would be better than the Nash equilibrium for both airlines? How could it be achieved? Who would lose if it were achieved?
Suppose that each company can charge either a high price for tickets or a low price. If one company charges $300, it earns low profit if the other company also charges $300 and high profit if the other company charges $600. On the other hand, if the company charges $600, it earns very low profit if the other company charges $300 and medium profit if the other company also charges $600. a. Draw the decision box for this game. b. What is the Nash equilibrium in this game? Explain. c. Is there an outcome that would be better than the Nash equilibrium for both airlines? How could it be achieved? Who would lose if it were achieved?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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answer the ff: Suppose that each company can
charge either a high
one company charges $300, it earns low profit if the
other company also charges $300 and high profit if
the other company charges $600. On the other hand,
if the company charges $600, it earns very low profit if
the other company charges $300 and medium profit
if the other company also charges $600.
a. Draw the decision box for this game.
b. What is the Nash equilibrium in this game?
Explain.
c. Is there an outcome that would be better than the
Nash equilibrium for both airlines? How could it
be achieved? Who would lose if it were achieved?
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