Concept: Duopoly Game 2 Consider a market with two fims, Target and Wal-Mart, th

Question

Concept: Duopoly Game 2 Consider a market with two fims, Target and Wal-Mart, that sell CDs in their musice department. Both stores must choose whether to charge a high price ($30) or a low price (313) for the new Miley Cynus Co. These price strategies with comesponding profits are depiched in the payoff matrix to the right. Targets profts are in red and Wal-Mart's are in blue. Targers dominant strategy is to pick a price of $ 13 Wal-Marts dominant strategy is to pick a price of $ 13 What is the Nash equilibrium for this game? Target Price $30 Price $13 Price $30 $6,000 O A. A Nash equilibrium does not exist for this game O B. The Nash equiibrium is for Target to choose a price of $30 and Wal-Mart to choose a price of $13 O C. The Nash equlibrium is for Target to choose a prikce of $13 and Wal Mart to choose a price of $30. O D. The Nash equilibrium is for Target and Wal-Mart to both choose a price of $13 O E. The Nash equilibrium is for Target and Wal-Mart to both choose a price of $30 Wal- Mart Price $13 $1,500

Explanation / Answer

a) A Nash equilibrium is a situation where no player can change the strategy unilaterally or he will face a loss. Here, the Nash equilibrium is "D" both the players charging a low price for the CD. If any player changed his strategy unilaterally i.e. charges a higher price its profit will decline to 1500 which is less than 3000.

b) A firm is a monopoly when they are the only source of a good which have no close substitute. it was a monopoly because it was the only source of electricity. (this question must be having a paragraph about the situation which is missing here without it, it's difficult to answer it. It would be great if you can provide that para. )

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