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In: Economics

If there are two companies making the same model of cellphones. Assuming the demand for the...

If there are two companies making the same model of cellphones. Assuming the demand for the cellphones produced by Company 1 is D1, and the demand for the cellphones produced by Comp nay 2 is D2, are described by the following two functions:
D1=200-P1-(P1-P)
D2=170-P2-(P2-P)
where P is the average price over the prices of the two companies, i.e., P=[P1+P2]/2. Each company has the cost of C1=C2=10 for producing one cellphone. Suppose each company can only choose one of the three prices {40, 70, 90} for sale.

(1] Compute the profits of each company under all sale price combinations and make the payoff matrix for the two companies. [Hint: the total profits = the demand for the cellphones * the profit of one cellphone after sale. You can type the pay off table for each company as a matrix in the ansering box such that the first row and first column present strategies.]

(2] Find the Nash equilibrium of this game. What are the profits at this equilibrium? Explain your reason clearly.


(3) If the cost for Company 2 changed as C2=20, would the Nash equilibrium change? Why?

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Expert Solution

Rahul Sunny answered 2 years ago
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