Answer to Question #288225 in Microeconomics for Likenaw

Question

Consider technology adoption decisions of two firms. Firm A has two possible types, either

high or low costs, with associated probabilities 2/3 and 1/3. Firm A observes its own type,

but firm B cannot observe it. Graphically, firm A knows which payoff matrix firms are

playing, while firm B can only assign a probability 2/3 or1/3 to playing the left-hand (right hand) matrix

a) Identify the strategy space of each firm?

b) Construct the Bayesian normal-form representation of the incomplete information game

and determine the Bayesian Nash equilibrium?

Answer 1

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