Two companies, ABC and QRS, are sellers in the same market. Each company decides whether to charge a high price or a low price. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. ABC's Decision High price Low price ABC's profit - $10 million ABC's profit - $14 million High price QRS's profit = $10 million QRS's profit - $4 million QRS'S Decision ABC's profit = $4 million ABC's profit = $6.5 million Low price QRS's profit = $14 million QRS's profit = $6.5 million a) If these two companies collude what is the best joint strategy that they should agree upon? How much would they each eam in profits? b) Definelexplain in general the concept of "dominant strategy". What is ABC's and QRS' dominant strategy here? c) Define lexplain in general the concept of " Nash equilibrium". Identify the Nash equilibrium on the payoff matrix, that is what are the profits earned by each competitor at the equilibrium?

Two companies, ABC and QRS, are sellers in the same market. Each company decides whether to charge a high price or a low price. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. ABC's Decision High price Low price ABC's profit - $10 million ABC's profit - $14 million High price QRS's profit = $10 million QRS's profit - $4 million QRS'S Decision ABC's profit = $4 million ABC's profit = $6.5 million Low price QRS's profit = $14 million QRS's profit = $6.5 million a) If these two companies collude what is the best joint strategy that they should agree upon? How much would they each eam in profits? b) Definelexplain in general the concept of "dominant strategy". What is ABC's and QRS' dominant strategy here? c) Define lexplain in general the concept of " Nash equilibrium". Identify the Nash equilibrium on the payoff matrix, that is what are the profits earned by each competitor at the equilibrium?

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter10: Monopolistic Competition And Oligopoly

Section: Chapter Questions

Problem 13PAE

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