Answered: Suppose there are two firm that is firm…

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

1. Find best responses of one of the firms to the strategies of its counterpart. Which of the strategies is not a best response to any pure strategy?

2. Let firm 2 play strategies (0, 1, 2) with probabilities (q1, q2, q3), q1 +q2 +q3 = 1. Calculate the expected payoff of firm 1 from playing each of the three strategies. Show that the strategy which is not the best response to any pure strategies is strictly dominated by the other two strategies if firm 2 plays mixed strategies.

Suppose there are two firm that is firm 1 and firm 2, each firm has three possible
choice as it must decide whether or not to
(i) exit at the industry immediately (E).
(ii) exit at the end of the quarter (T).
(iii) exit at the end of the next quarter (N).
a)
Matrix formy
FIRM-2
T
0.2
-1,-1
1,-1
ETN
firm-1 T
E
0.0
2,0
4.0
0,4
-1,1
-2.2

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