Q1. Firms 1 and 2 have identical constant marginal costs of c and no xed costs. They produce an identical product and compete by simultaneously setting price in a single period.

(a) In the Nash equilibrium, each rm plays a dominant strategy.

(b) In the Nash equilibrium, each rm produces the Cournot output.

(c) There is no Nash equilibrium to this game.

(d) In the Nash equilibrium, both rms take turns undercutting each other.

(e) None of the above.

Q2. Firms 1 and 2 produce an identical product. They compete by simultaneously choosing a price and a "message" for their product. Message a is simple and message b is complex. If at least one rm chooses message b, then not all consumers are able to compare the products.

(a) There is a Nash equilibrium in which both rms set price equal to marginal cost and choose message a.

(b) There is a Nash equilibrium in which both rms set price equal to marginal cost and choose message b.

(c) Both rms have a dominant strategy to undercut the price of their rival.

(d) There is no Nash equilibrium with marginal cost pricing.

(e) None of the above.