Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 17 - Part V - Oligopoly - Problems and Applications - Page 368: 5

Answer

a) Synergy doesn't have a dominant strategy. b) Dynaco has a dominant strategy of a large budget. c) Yes, there is a Nash equilibrium for this scenario. Both firms will have large budgets.

Work Step by Step

a) If Dynaco was to have a large budget, Synergy would be better off with a large budget (gaining 20 million dollars) than with a small budget (gaining nothing). However, if Dynaco was to have a small budget, Synergy would be better off with a small budget (gaining 40 million dollars) than with a large budget (gaining 30 million dollars). b) If Synergy was to have a large budget, Synergy would be better off with a large budget (gaining 30 million dollars) than with a small budget (gaining nothing). However, if Synergy was to have a small budget, Synergy would be better off with a large budget (gaining 70 million dollars) than with a large budget (gaining 50 million dollars). c) Synergy doesn't have a dominant strategy. However, Dynaco has a dominant strategy of having a large budget. Thus, Synergy would be better off with a large budget than a small budget.
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