Two Firms Are Selling the Same Product

question 50

Multiple Choice

Two firms are selling the same product. Each has a choice of setting a high price or a low price. If they both set high prices, they make $150 each. If they both set low prices, they each make $125. If one sets a low price and the other sets a high price, then the player with the low price makes $200, while the player with the high price makes $100. The Nash equilibrium of this game is:

• A)one to set high price and the other to set low price.
• B)there does not exist a Pure Strategy Nash Equilibrium for this game
• C)both choosing high price.
• D)both choosing low price.

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Definitions:

LIFO

"Last In, First Out," an inventory valuation method where the last items added to inventory are the first ones to be used or sold.

Average Cost

This refers to the cost of producing a good or service, calculated by dividing the total costs of production by the number of units produced.

Lower Of Cost

An accounting principle that values inventory at the lower of its historical cost or the current market value, to record losses in value.

FIFO

First In, First Out; an inventory valuation method where the first items placed in inventory are the first to be removed or sold.