Microeconomics,, 16th Canadian Edition

two firms will split the price and costs evenly. The payoffs for
each firm under each situation are shown in the matrix.

A bids $10 000 A bids $5000

B bids $10

000

Firms share the

contract

A wins the contract

Payoff to Payoff to

Payoff to Payoff to

B bids

$5000

B wins the contract Firms share the

contract

Payoff to Payoff to

Payoff to Payoff to

a. Recall from the text that a Nash equilibrium is an

outcome in which each player is maximizing his or her

own payoff given the actions of the other players. Is there a

Nash equilibrium in this game?

b. Is there more than one Nash equilibrium? Explain.

A=$ 3000 A=$ 1000

B=$ 3000 B=$ 0

A=$ 0 A=$ 500

B=$ 1000 B=$ 500