# 3quiz8noanswer-2015.doc - 1 Suppose that there are only two...

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1- Suppose that there are only two pizza shops in a particular geographic market – let’s call them Roma’s and Tony’s. Suppose that they each only consider three possible prices for a pie: a high price (H), a medium price (M) and a low price (L). The profit per pie sold at each price is known to be \$12, \$10, and \$6 for each firm (regardless of the volume of sales). Further, there is a perfectly inelastic demand in the market as a whole: customers will buy 10,000 pies per week regardless of the price. However, if the prices at the two shops are different, all of the demand goes to the lower priced shop, and if the prices at the two shops are the same, the shops will split this market demand evenly. Suppose that this is a simultaneous move game a- Equilibrium a)- This game does not have a Nash equilibrium b)- There is only one Nash equilibrium (both players charge a low price) c)- There are two Nash Equilibria, d)- There are three Nash Equilibria.
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