Two companies are offering picture frames with the University logo online. Consumers are indifferent between the two, and will just purchase from the cheaper option. Costs to make and send the product are $20 per item (for both firms), and let's assume the stores are limited to charging either $25. $30 or $35
Two companies are offering picture frames with the University logo online. Consumers are indifferent between the two, and will just purchase from the cheaper option. Costs to make and send the product are $20 per item (for both firms), and let's assume the stores are limited to charging either $25. $30 or $35
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![Two companies are offering picture frames with the University logo online.
Consumers are indifferent between the two, and will just purchase from the cheaper
option.
Costs to make and send the product are $20 per item (for both firms), and let's assume the
stores are limited to charging either $25, $30 or $35
The demand is such that the consumers are willing to purchase Q (P) = 100 – 2P units,
where P is the lowest of the two prices the firms charge (as only the lower price is
relevant: the firm charging the higher price does not sell any units; while if they charge the
same price, each sells half of the demanded quantity)
Example: if each firm charges $25, then the quantity demanded will be
Q (25) = 100 -2.25 = 50. Since they both charge the same price, each will sell
50/2=25 units: 9₁ 92 = 25. That means the profit of each irm will be
II (25; 25) =
= 25-25-20-25 = 125
Alternatively, if firm A charges $30, while firm B charges $35, then firm B will not sell any
units, and firm A will sell (30)- 100-2.30 = 40 units by itself. That means its profit
will be IIA (30, 35) = 30-40-20-40 = 400, while firm B will have a profit of 0 (since
it sells no units).
What is the Nash equilibrium of this game?
O 25, 25
O 25, 30
35, 30
O25, 35
35, 25
O 30, 35
35, 35
O 30, 30
O 30, 25](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F97355775-9a5a-4e25-8cb5-a32b99250343%2F8c2a8747-c505-4cd1-8db3-9adafcf204d8%2F3g34xup_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Two companies are offering picture frames with the University logo online.
Consumers are indifferent between the two, and will just purchase from the cheaper
option.
Costs to make and send the product are $20 per item (for both firms), and let's assume the
stores are limited to charging either $25, $30 or $35
The demand is such that the consumers are willing to purchase Q (P) = 100 – 2P units,
where P is the lowest of the two prices the firms charge (as only the lower price is
relevant: the firm charging the higher price does not sell any units; while if they charge the
same price, each sells half of the demanded quantity)
Example: if each firm charges $25, then the quantity demanded will be
Q (25) = 100 -2.25 = 50. Since they both charge the same price, each will sell
50/2=25 units: 9₁ 92 = 25. That means the profit of each irm will be
II (25; 25) =
= 25-25-20-25 = 125
Alternatively, if firm A charges $30, while firm B charges $35, then firm B will not sell any
units, and firm A will sell (30)- 100-2.30 = 40 units by itself. That means its profit
will be IIA (30, 35) = 30-40-20-40 = 400, while firm B will have a profit of 0 (since
it sells no units).
What is the Nash equilibrium of this game?
O 25, 25
O 25, 30
35, 30
O25, 35
35, 25
O 30, 35
35, 35
O 30, 30
O 30, 25
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