question archive GAME THEORY QUESTION 1
GAME THEORY QUESTION 1
Subject:EconomicsPrice: Bought3
GAME THEORY QUESTION
1. (40 points) Suppose that two firms are competing in a market and their products are imperfect substitutes for one another. The demand functions for firms 1 and 2 are given by following:
Q1 (P1, P2) = 10 - 2P1 + P2 and Q2 (P1, P2) = 10 + P1 - 2P2
where P1 and P2 are prices charged by Firm 1 and Firm 2, respectively. Assume that the unit cost of each firm is equal to zero. Formulate this situation as a strategic form game, and find its Nash equilibria.
