Question

1. Suppose you and a rival are the only producers of oysters in a town. Each morning you harvest

   oysters to sell in the afternoon. You both have the choice to collect 10 or 20 dozen oysters. Each dozen has a marginal cost of $10 (so the cost of 10 dozen oysters is $100). If 20 dozen oysters in total are brought to the market, they will sell for $35 each. If 30 dozen oysters in total are brought to the market, they will sell for $25 each. If 40 dozen oysters in total are brought to the market they will sell for $20 each. You and your rival must simultaneously decide how many oysters to collect in the morning.

   A.Write out the payoff matrix for this game. B.Find the pure strategy Nash equilibrium for this game. C.Suppose, instead, you could discuss with your rival how many oysters to collect in the morning. D. What outcome would you agree to? Is this different from the Nash equilibrium?

Answer 1