Question

In Korea, there are two equal-sized automobile manufacturers that share the domestic market: Kia Company and Daewoo Company. Each company can produce650or400mediumsizedautomobilesamonth. KiaandDaewooboth get $5,000,000 each if they both produce 650 cars. If Kia produces 650 cars and Daewoo produces 400 cars, Kia gets $3,000,000 per month and Daewoo gets $6,000,000 a month. If Kia produces 400 cars and Daewoo produces 650 cars, Kia gets $6,000,000 and Daewoo gets $3,000,000. If both Kia and Daewoo

produce 400 cars, they each get $4,000,000.

a. Representthisinformationinanormalfonngame. (7Marks) b. Doeseitherfirmhaveadominantstrategy?Explainyouranswer.

c. What is the solution to this game? Is the solution to this game a Nash

_

Question 1

equilibrium?

d. Whatstrategiesdoyouthinkeachautomobilefirmwilladoptifcollusion

was possible?

Answer 1