Nalyzing the expected profits of two firms
Assume that you are an economist and you have been asked to analyze the expected profits of two firms (King and Babil) based on different strategies can be adopted by these firm.
If you have been given the information below:
1. if neither firms advertises, King and Babil earn profits of Rial 150 mil per year
2. if both firms advertise, both earn profits of Rial 100 mil per year
3. if King advertises and Babil does not, King earn profits of Rial 300 mil per year and Babil of Rial 80.
4. if Babil advertises and King does not, Babil earns profits of Rial 300 mil per year and King of Rial 80.
Using the above information, answer the following:
Q1- Construct a payoff matrix.
Q2- Illustrate and explain the collusion strategy.
Q3- Illustrate and explain the domain strategy.
Q4- Illustrate and explain the Nash equilibrium.