1. Macaroni Unlimited, Ltd. (MUL), is trying to decide whether or not to enter the spaghetti...

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Economics

1. Macaroni Unlimited, Ltd. (MUL), is trying to decide whetheror not to enter the spaghetti sauce market. It knows that itsactions will be closely monitored by the local spaghetti saucemonopoly, Sicilian Scintillations (SS), which can then choosewhether or not to set a high price for sauce or a low price. IfMacaroni Unlimited does not enter, it earns profits of zero. If itdoes, then its profits depend on SS's price. If the price is low,Macaroni Unlimited loses $100. If the price is high, it makes $50.SS's profits with a low price are $10 if MU does not enter and $70if MU does enter. SS's profits with a high price are $200 if MUdoes not enter and $50 if MU does enter.
a) Draw this game in the Normal Form (the boxed table like inthis Module, payoff matrix).
b) Does either firm have a Dominant Strategy? If so, which?
c) Find all of the Nash Equilibria (in pure strategies).

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4.1 Ratings (750 Votes)

a b No neither firm has a dominant strategyThestrategy of a firm is dependent of the strategy taken by the otherfirm if they want to maximise profitscTo find the Nash equilibria we examine actions taken See Answer

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