Question

# he figure below shows the payoff matrix for two firms, Firm 1 and Firm 2, selecting...

he figure below shows the payoff matrix for two firms, Firm 1 and Firm 2, selecting an advertising budget.  For each cell, the first coordinate represents Firm 1's payoff and the second coordinate represents Firm 2's payoff. The firms must choose between a high, medium, or low budget.

 Payoff Matrix Firm 1 High Medium Low Firm 2 High (0,0) (5,5) (15,10) Medium (5,5) (10,10) (5,15) Low (10,15) (15,5) (20,20)

Use the figure to answer the following questions. Note: you only need to submit scratch work for the mixed strategy calculations.

This game can be simplified by eliminating strategies that are strictly dominated.

Which budget will Firm 1 never select (High, Medium, or Low)?

Which budget will Firm 2 never select (High, Medium, or Low)?

There are two pure strategy Nash equilibria in this game. What are they?  Submit the answers as coordinates. For example: (High, Low) represents the strategy where Firm 1 plays 'High' and Firm 2 plays 'Low'.

Pure Strategy Nash Equilibrium 1:

Pure Strategy Nash Equilibrium 2:

This game also has a mixed strategy. What is the mixed-strategy Nash equilibrium?  Enter your answers as decimal numbers, rounding to two digits when needed.

Firm 1 will set a 'High' budget with probability:

Firm 1 will set a 'Medium' budget with probability:

Firm 1 will set a 'Low' budget with probability:

Firm 2 will set a 'High' budget with probability:

Firm 2 will set a 'Medium' budget with probability:

Firm 2 will set a 'Low' budget with probability:

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