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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:
$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)
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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- Fall '07