Question

Q3) The following matrix shows strategies and payoffs for two firms that must decide how to price.
(5 Points)

Firm 1		Firm 2
		Price High	Price Low
	Price High	500, 500	-100, 400
	Price Low	400, -100	250, 250

What is the Nash Equilibrium of this game?

Q4) Use the marginal of product of labor to illustrate graphically the impact of an increase in immigration on employment and wages. (10 Points)

Answer 1

3)

There is no dominant strategy in this game for either of players.

Thus when the player 1 select the the high price strategy, the player 2 will respond with high price strategy as well. Similarly, if player 2 selects the high pricing strategy, player one will respond with high pricing strategy as well.

Further , if the low pricing startegy is selected by player one, the player 2 will select the low price strategy and vice versa.

Hence Nash equilibrium: ( high price : high price) and ( low price : low price)