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Assume two firms are operating in the market.The quality of the product each firm can offer

By March 4, 2022No Comments

Assume two firms are operating in the market.The quality of the product each firm can offercan be either high or low.If the firm decides to offer low quality,the per unit cost of productionsis£4 while if quality is high,the per unit cost of productions is E6.The market price of eachproduct does not depend on quality and is equal to f10.Each customer purchases one unitand there are 4,000 customers in the market.According to market research,consumers preferto purchase goods of higher quality and if the quality offered by both firms is the same,then50%of customers selects each firm.a)Write the simultaneous move matrix of the game.b)Find and explain the Nash equilibrium/a.Assume each firm is thinking of launching an advertising campaign.A campaign will allow thefirm to sell at price£11.Only one firm can advertise at a time,the firm paying the highestamount.c)Write the new simultaneous move matrix of the game.d)What is the maximum amount firm 1 can spend on a campaign?Instead of paying for an advertising campaign firm 1 has the opportunity to move first.e)Write the game tree for the sequential move game.f)Is there a first mover advantage?Explain why (not).

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