QUESTION 5 Player l PlayerI A 44 B 35 7,2 Consider the strategic form game above

Question

QUESTION 5 Player l PlayerI A 44 B 35 7,2 Consider the strategic form game above. In this game, the following strategy profiles are efficient (Please, select all that apply) a. (AD) b(BD). C (B.C) O d.(AC) QUESTION Consider the Hotelling model of the competition between two firms discussed in class. Select all that apply. aff Firm 1 and Firm 2 localize at the same point along the line, they will each sell to 50% of the consumers. DIf Firm 1 is located at position 1/2 (i.e., center of the line) and firm 2 is located somewhere else, then both firms have incentives to deviate and change their position along the line. ,In the Nash Equilibrium in pure strategies firms will localize together anywhere along the line. d.If both firms are localized in position 1/2 (i.e., center of the line), neither fim has incentives to deviate and move to a different position

Explanation / Answer

5. d) (A, C)

Nash equilibrium is a strategy profile such that for each player given strategy, it is best response. Nash equilibrium is a set of strategies such that each player is doing their best given the strategy of other player.

If Player 1 chooses A then best response of Player II is to choose C because of higher payoff.

If Player II chooses C then best response of Player I is to choose A.

So, (A, C) is the Nash Equilibrium.

If Player 1 chooses B then best response of Player II is to choose C because of higher payoff.

If Player II chooses C then best response of Player I is to choose A.

So, (B, C) is not the Nash Equilibrium.

6. Hotelling model is a model in which identical products are differentiated because of location of their supplier was provided by hotelling.

b) and d) are correct options.

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