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Two firms are planning their market strategies.

Firm K can earn $25 million in profits from strategy S if firm L responds with strategy P, and $7.5 million in profit from S if L responds with strategy Q. Firm K can follow strategy T, which returns $16 million if firm L responds with strategy P and $5 million if L responds with strategy Q.

Firm L's potential profits would be $10 million and $18 million from strategy P, depending on wether firm K implements strategy S or T. Firm L's profits from strategy Q would be $14 millions or $12 million depending on wether firm K follows strategy S or T.

A. Construct a payoff table.
B. Does either firm have a dominant strategy? Dominated? Is there a stable equilibrium?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M946213

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