Suppose two companies, Apples and Dell, are a competing duopoly.If both companies charge the high price, they each earn $700 million in economic profit.If both companies charge the low price, they each earn $500 million in economic profit.If one company charges a high price and the other a low price, the company charging the higher price earns $450 million in economic profit and the company charging the lower price earns $800 million in economic profit.Create a payoff matrix and play the game.1. What is the Nash equilibrium? Select all possible answers. 2. Thinking back to your answer for the Nash equilibrium, can firms do better than the outcome you identified? Explain. high price, high pricehigh price, low price.low price, low price700, 700no Nash equlibrium450, 800low price, high price500, 500

The Nash equilibrium is used to show that decision-making is a system of strategic interactions…

Answered: Suppose two companies, Apples and Dell,…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose two companies, Apples and Dell, are a competing duopoly.

If both companies charge the high price, they each earn $700 million in economic profit.
If both companies charge the low price, they each earn $500 million in economic profit.
If one company charges a high price and the other a low price, the company charging the higher price earns $450 million in economic profit and the company charging the lower price earns $800 million in economic profit.

Create a payoff matrix and play the game.

1. What is the Nash equilibrium? Select all possible answers.

2. Thinking back to your answer for the Nash equilibrium, can firms do better than the outcome you identified? Explain.

high price, high price
high price, low price.
low price, low price
700, 700
no Nash equlibrium
450, 800
low price, high price
500, 500

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