1. (25) Firms Acme and Best operate in a market with demand given by: P (Q)...

1. (25) Firms Acme and Best operate in a market with demand given by: P (Q) = 100 − Q. Each firm has costs given by: C(Q) = 10Q. Each firm has three possible output levels: 25, 30, and 40. For parts (a) through (c), assume that the firms simultaneously choose their output level.

(a) (10) Construct the 3 by 3 payoff matrix to illustrate the returns (in this case, the profits) from choosing the various output combinations.

(b) (5) What is Acme’s strategy? Is this a dominant strategy?

(c) (5) What is the Nash equilibrium of this game?

(d) (5) Now assume that the firms sequentially choose their output levels with Acme choosing first. Describe the game using a game tree.

Expert Solution

Rahul Sunny answered 1 year ago

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