Answer to Question #292886 in Microeconomics for Nibret

Question

1)    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.

Figure: technology adoption

 

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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