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# Unchanged only if mc drops below mc1 or increases

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Unformatted text preview: MC drops below MC1 or increases over MC2, price and output change. Page 22 of 33 ©Prep101 www.prep101.com/freestuff Use the following information on per unit prices and game payoffs to answer question 36: Firm B \$3 per unit \$2 per unit \$3 per unit A: \$300 B: \$300 A: \$800 B: \$100 \$2 per unit A: \$800 B: \$100 A: \$400 B: \$400 Firm A Q36. What is the most likely outcome? a) b) c) d) e) Firm A charges \$3 and firm B charges \$2 Firm A charges \$2 and firm B charges \$3 A cycle of \$2, then \$3, etc. Both firms charge \$3 Both firms charge \$2 Solution: c) A cycle of first \$2, then \$3, etc. If A anticipates B to charge \$3 per unit, 1) A will make \$300 if it charges \$3, 2) A will make \$800 if it charges \$2 A should charge \$2. If A anticipates B to charge \$2 per unit, 1) A will make \$800 if it charges \$3, 2) A will make \$400 if it charges \$2 A should charge \$3. A has no dominant strategy and the best way of action depends on the decision made by firm B Similar result holds for firm B. Q37. Suppose there are tw...
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