Question
There are two profit maximizing firms, 1 and 2, producing a homogenous product in a market with demand function P = 100 Q. Firm 1s
There are two profit maximizing firms, 1 and 2, producing a homogenous product in a market with demand function P = 100 Q. Firm 1s cost function is given by c1(q1) = 10q1 and that of firm 2 by c2(q2) = 20q2. The two firms have to simultaneously decide what price to set for the product. The price they set can be any prime number. The firm setting the lower price will get to service the entire demand in the market prevailing at that price. In case the two prices are the same, the market demand at that common price will split equally between the two. Model this strategic situation as a normal form game and identify its set of pure strategy Nash equilibria. Support your answer with precise arguments.
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