Suppose Coca Cola and PepsiCo are producing a new, healthy version of Coke and Pepsi. They are trying to figure out how much of this new soda to produce. They know: (i) If they both produce 10,000 liters a day, they will make the maximum attainable joint economic profit of $200,000 a day, or $100,000 a day each. (ii) If either firm produces 20,000 liters a day while the other produces 10,000 a day, the one that produces 20,000 liters will make an economic profit of $150,000 and the other will incur an economic loss of $50,000. (iii) If both produce 20,000 liters a day, each firm will make zero economic profit. (a) Describe the payoff matrix for the game that Coca Cola and PepsiCo must play. (b) Find the Nash equilibrium of the game that Coca Cola and PepsiCo play.

Suppose Coca Cola and PepsiCo are producing a new, healthy version of Coke and Pepsi. They are trying to figure out how much of this new soda to produce. They know: (i) If they both produce 10,000 liters a day, they will make the maximum attainable joint economic profit of $200,000 a day, or $100,000 a day each. (ii) If either firm produces 20,000 liters a day while the other produces 10,000 a day, the one that produces 20,000 liters will make an economic profit of $150,000 and the other will incur an economic loss of $50,000. (iii) If both produce 20,000 liters a day, each firm will make zero economic profit. (a) Describe the payoff matrix for the game that Coca Cola and PepsiCo must play. (b) Find the Nash equilibrium of the game that Coca Cola and PepsiCo play.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.3P

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