Question no 1

Question 1 Sendai Bhd. and Talam Bhd. serve the same market. They have constant average costs of RM18 per unit. The firms can choose either a high price (RM59) or a low price (RM29) for their output. When both firms set a high price, total demand is 25,000 units which is split evenly between the two firms. When both set a low price, total demand is 45,000, which is again split evenly. If one firm sets a low price and the second a high price the low priced firm sells 28,000 units, the high priced firms only 11,000 units. Required: a. Analyse the pricing decisions of the two firms as a non-co-operative game and answer the following; i. Construct the pay-off matrix, where the elements of each cell of the matrix are the two firm's profit. ii. Derive the equilibrium set of strategies. (15 Marks) (5 Marks)