Two competing firms must choose their quantity of production simultaneously. Each firm can either choose a High quantity of 3 or a Low quantity of 2. The firms sell their products at the same price, given by P = 9 - Q where Q is the sum of both quantities. a) For simplicity, assume there are no costs. Draw the payoff matrix for this game, where the payoffs of each firm are its profits. b) Find all Nash equilibria. Explain your answer. c) If this game was played sequentially, explain without solving the game, why there would not be a first-mover advantage.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Two competing firms must choose their quantity of production simultaneously. Each firm can
either choose a High quantity of 3 or a Low quantity of 2. The firms sell their products at the
same price, given by P = 9 - Q where Q is the sum of both quantities.
a) For simplicity, assume there are no costs. Draw the payoff matrix for this game,
where the payoffs of each firm are its profits.
b) Find all Nash equilibria. Explain your answer.
c)
If this game was played sequentially, explain without solving the game, why there
would not be a first-mover advantage.
Transcribed Image Text:Two competing firms must choose their quantity of production simultaneously. Each firm can either choose a High quantity of 3 or a Low quantity of 2. The firms sell their products at the same price, given by P = 9 - Q where Q is the sum of both quantities. a) For simplicity, assume there are no costs. Draw the payoff matrix for this game, where the payoffs of each firm are its profits. b) Find all Nash equilibria. Explain your answer. c) If this game was played sequentially, explain without solving the game, why there would not be a first-mover advantage.
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