Question
3. Two rms, Firm 1 and Firm 2, compete by simultaneously choosing prices. Both rms sell an identical product for which each of 100 consumers
3. Two rms, Firm 1 and Firm 2, compete by simultaneously choosing prices. Both rms sell an identical product for which each of 100 consumers has a maximum willingness to pay of $10. Each consumer will buy at most 1 unit, and will buy it from whichever rm charges the lowest price. If both rms set the same price, they share the market equally. Costs are given by ci(qi) = 4qi . Because of governmental regulation, rms can only choose prices which are multiples of $0.25, and they cannot price above $10. This game has 3 Nash equilibria in pure strategies. Find them all.
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