-The Only Two Firms in a Market Are Trying to Decide

question 116

Multiple Choice

-The only two firms in a market are trying to decide what price to charge.The payoff matrix for this duopoly game is shown above.The payoffs are thousands of dollars of economic profit.In the Nash equilibrium,Firm A will set a price of ________ and Firm B will set a price of ________.

• A) $10; $20
• B) $20; $10
• C) $10; $10
• D) $20; $20
• E) $20; something, but more information is needed to determine Firm B's price

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Definitions:

Monopolistically Competitive

A commercial framework where a large number of businesses market goods that are comparable, but not exact duplicates, providing them with a bit of control over market conditions.

Perfectly Competitive

A market structure characterized by a large number of small firms, identical products, and free entry and exit, leading to price-taking behavior.

Horizontal

Refers to something that is parallel to the horizon, often used in contrast with vertical; in economics, it may pertain to mergers between companies at the same stage of production.

Economic Profits

Refers to the financial gains that exceed the total costs, including both explicit and implicit costs, of a business.