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 dominant strategy equilibrium in this problem? If so, what is it?
b. Is there Nash equilibrium in this problem? If so, what is it?
a. What is the firm's Total Revenue?
b. What is the Total Cost?
c. What is the firm's Total Profits?
d. If the above monopolist were to behave like a perfectly competitive firm (operating in the long run), determine its output.