Answer to Question #255511 in Microeconomics for yash

Question

Suppose the market for cookbooks is a duopoly. The chart below shows a payoff matrix for the two cookbooks producers (2 points). 35 Producer 1’s option Producer 2’s Option Low Price Low Price High Price High Price $20 $20 $80 $1 $1 $80 $100 $100 a. What is the dominant strategy for Producer 1? Producer 2? b. What is the Nash equilibrium

Answer 1

A.

in dominant strategy is a strategy player choose irrespective of what the other player chooses.

Let consider producer 1

the best strategy to choose when producer 2 choose low price is to choose low price so as to receive higher pay off.

the best strategy to choose when producer 2 choose high price is to choose high price so as to receive higher pay off.

So, producer 1 doesn't have a dominant strategy.

let's consider Producer 2

For producer 2, the best strategy to choose given producer 1's strategy to choose low price is to choose low price.

For producer 2, the best strategy to choose given producer 1's strategy to choose high price is to choose high price

so producer 2 doesn't have a dominant strategy.

Both the producers do not have dominant strategy.

B.

There are two Nash equilibrium for this game as shown in figure below-

game is- (Low price, low price) and (high price, high price).

Thus, the two Producers will either charge high price simultaneously or low price simultaneously. No one has an incentive to change its position from the equilibrium.