Y7

Firm 1and Firm 2are two oligopoly rival firms selling identical products. Each can choose either a low price or a high price for their products and each aims to maximize its profits. The following payoff table shows the yearly profit outcomes for the various pricing decision combinations.

		Firm 2
		High	Low
Firm 1	High	$400 $150	$700 $200
Low	$300 $700	$200 $150

Suppose Firm 1 chooses and announces its price strategy before Firm 2.

a. Construct (draw) and explain an extensive-form game diagram that summarizes all the information of the game. (If you don't know to do it electronically, you can manually draw it on a piece of paper, scan it and submit it. (Note: Only properly drown figures will be accepted)