a Firm A and Firm B decide to launch their new products in the market. Each firm can choose to either sell the product at a high price (H) or a low price (L). The estimated payoff table is as follows: Firm B L H Firm A L (250, 150) (280, 130) H (140, 180) (270, 190) (Firm A's payoff is given before the comma, and Firm B's payoff is given after the comma.) i What are the dominant strategies (if any) for Firm A and Firm B respectively? ii What is the Nash equilibrium outcome, if any? Explain. ( iii If Firm A can decide on what strategy to use first, what will be the Nash equilibrium (if any) of this sequential game? Explain with the aid of a tree diagram. b Explain why the market of health insurance is less efficient with the presence of asymmetric information. (Assume the insured knows more about his/her health condition than the insurance provider.)
a Firm A and Firm B decide to launch their new products in the market. Each firm can choose to either sell the product at a high price (H) or a low price (L). The estimated payoff table is as follows: Firm B L H Firm A L (250, 150) (280, 130) H (140, 180) (270, 190) (Firm A's payoff is given before the comma, and Firm B's payoff is given after the comma.) i What are the dominant strategies (if any) for Firm A and Firm B respectively? ii What is the Nash equilibrium outcome, if any? Explain. ( iii If Firm A can decide on what strategy to use first, what will be the Nash equilibrium (if any) of this sequential game? Explain with the aid of a tree diagram. b Explain why the market of health insurance is less efficient with the presence of asymmetric information. (Assume the insured knows more about his/her health condition than the insurance provider.)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:a Firm A and Firm B decide to launch their new products in the market.
Each firm can choose to either sell the product at a high price (H) or a
low price (L). The estimated payoff table is as follows:
Firm B
L
H
Firm A
L
(250, 150)
(280, 130)
H
(140, 180)
(270, 190)
(Firm A's payoff is given before the comma, and Firm B's payoff is
given after the comma.)
i What are the dominant strategies (if any) for Firm A and Firm B
respectively?
ii What is the Nash equilibrium outcome, if any? Explain. (
iii If Firm A can decide on what strategy to use first, what will be
the Nash equilibrium (if any) of this sequential game? Explain
with the aid of a tree diagram.
b Explain why the market of health insurance is less efficient with the
presence of asymmetric information. (Assume the insured knows
more about his/her health condition than the insurance provider.)
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