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The payoff matrix below shows the profit for two competing airlines: Speedy Jet and Royal Jet. Each firm is deciding if they should charge
The payoff matrix below shows the profit for two competing airlines: Speedy Jet and Royal Jet. Each firm is deciding if they should charge a low price or a high price. Royal Air Speedy Jet Low Price High Price Low Speedy Jet earns $400 Speedy Jet earns $200 Price Royal Air Royal Air earns $200 earns $600 Speedy Jet High earns $500 Speedy Jet earns $600 Royal Air Price earns $300 Royal Air earns $700 1. If both Royal Air and Speedy Jet charge low prices, how much profit will each firm earn? 2. If Royal Air decides to price low and Speedy Jet prices high, how much profit will Royal Air earn? 3. Does Royal Air have a dominant strategy? If so, what is it? 4. Does Speedy Jet have a dominant strategy? If so, what is it? Your answer 5. Given this information, is there a Nash equilibrium? If so, what will each firm decide to do?
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