Question

Please help and write clearly, showing all work. Suppose that a firm produces cars, and they exist in an oligopoly. Specifically, there are two firms in the market which produce cars that are basically identical. They are so close that they both share the same market demand. Suppose that market demand is given by: p = 200 - 0.5QD. And assume (for simplicity) that both firms have a constant marginal cost of $10, with zero fixed costs. Each firm has to decide between two prices they could set, which are either (i) $105 or (ii) $60. If both firms choose the same price, then they split the market (i.e. they each produce half of the market demand and earn the revenue for those units). If the two firms choose different prices, then the firm with the lowest price takes all of the market demand at that price, and the firm with the highest price produces nothing (i.e. Q = 0). Which outcomes, if any, are Nash Equilibria? How do you know?

          Please help and write clearly, showing all work. Suppose that a firm produces cars, and they exist in an oligopoly. Specifically, there are two firms in the market which produce cars that are basically identical. They are so close that they both share the same market demand. Suppose that market demand is given by: p = 200 - 0.5QD. And assume (for simplicity) that both firms have a constant marginal cost of $10, with zero fixed costs. Each firm has to decide between two prices they could set, which are either (i) $105 or (ii) $60. If both firms choose the same price, then they split the market (i.e. they each produce half of the market demand and earn the revenue for those units). If the two firms choose different prices, then the firm with the lowest price takes all of the market demand at that price, and the firm with the highest price produces nothing (i.e. Q = 0). Which outcomes, if any, are Nash Equilibria? How do you know?

Added by Yolanda S.

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