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1). Suppose two competitors, Coa, Inc., and Han, Inc., are locked in a bitter pricing struggle in the aluminum industry. In the limit pricing payoff matrix, Coa can choose a given row of outcomes by offering a limit price ("up") or monopoly price ("down"). Han can choose a given column of outcomes by choosing to offer a limit price ("left") or monopoly price ("right"). Neither firm can choose which cell of the payoff matrix to obtain; the payoff for each firm depends upon the pricing strategies of both firms.

Han

Coa
Pricing Strategy
Limit Price
Monopoly Price

Limit Price
$1.5 billion, $3 billion
$2.5 billion, $2 billion

Monopoly Price
$1 billion, $4 billion
$1.75 billion, $3 billion

a. Is there a dominant strategy equilibrium in this problem? If so, what is it?

b. Is there a Nash equilibrium in this problem? If so, what is it?

2). A hypothetical monopoly firm is characterized by the following diagram.

a. Assuming that the above firm is a profit maximizer operating in the short run, determine its optimal price?

b. Determine the firm's profit per unit.

c. What is the ATC in dollars?

d. If the above monopolist were to behave like a perfectly competitive firm (operating in the long run), determine its price.

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Solution Summary

Nash equilibrium in this assignment is debated.

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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