5 (Table) Assume that firm A and firm B are oligopolies and both charge $20 for a product and face roughly the same costs. Firm A is considering a price decrease to $15. Profits for each firm are given in the payoff matrix (A's profits listed first, B's profits listed second) shown in the table. How will firm B react? Firm B's Price $20 Firm B's Price $15 $60,000 $120,000 $80,000 $80,000 Firm A's Price $20 Firm A's Price $15 $100,000 $100,000 $120,000 $60,000 Firm B will lower its price to $15 and earn $80,000. Firm B will keep its price at $20 and earn $100,000. Firm B will keep its price at $20 and earn $60,000. Firm B will lower its price to $15 and earn $60,000. Panel Editor

1   Consider two identical firms with a unit cost of production of $10 and a market demand of p= 60-y. (a) What is firm 1’s optimal output level as a function of firm 2’s output? (b) What is firm 2’s optimal output level as a function of firm 1’s output? (c) What is the Cournot equilibrium output level for these firms? (d) What is the Cournot equilibrium price level? Show your work step by step.

32

6. Using a payoff matrix to determine the equilibrium outcome Suppose that Zipride and Citron are the only two firms in a hypothetical market that produce and sell electric scooters. The following payoff matrix gives profit scenarios for each company (in millions of dollars), depending on whether it chooses to set a high or low price for scooters. Zipride Pricing price. High Low For example, the lower-left cell shows that if Zipride prices low and Citron prices high, Zipride will earn a profit of $13 million, and Citron will earn a profit of $3 million. Assume this is a simultaneous game and that Zipride and Citron are both profit-maximizing firms. Citron Pricing High 9,9 13, 3 If Zipride prices high, Citron will make more profit if it chooses a Low If the firms do not lude, 3, 13 6, 6 If Citron prices high, Zipride will make more profit if it chooses a price. Considering all of the information given, pricing low True False Both Zipride and Citron will choose a low price. strategies…