Profit Level Calculation With Pay-off Matrix

Question

Consider the following pay-off matrix (Numbers in the matrix reflect their respective profit levels) for two gas stations.

 

Gas station A

Gas Station B

High price

Low price

High price

200,000 AED; 200, 000 AED

50,000 AED; 400,000 AED;

Low price

400,000 AED; 50,000 AED

80,000 AED; 80,000 AED;

If each firm follows their dominant strategy, then what will be their respective profit levels? And if they collude then what is their new profit level?

 

Summary

The question belongs to Economics, Micro-economics and it discusses about a pay-off matrix for two gas stations with dominant strategy and calculate profit levels.

Total Word Count 125

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