Name:________________________________
Economics 121 A & B
Fall 1996 - Prof. Becker
At a large university there are two bookstores.
One is located on campus in the student center and the other is
located just off campus. Instructors inform both stores of their
textbook choices. Both stores carry new and used books for every
class.
Each store must decide on a price for the introductory
economics textbook: either $40 or $45. Their "payoffs"
matrix is shown below. It gives the profit for each bookstore
from sales of this book. (e. g., If the on-campus price is $45
and the off-campus price is $40, then the on campus store's profit
is $5,500 and the off-campus store's profit is $9,500.)
| 40 | 45 | ||
40 | $5,000 $7,500 | $2,000 $11,250 | |
45 | $9,500 $5,500 | $8,600 $10,400 | |
(a) (5 points) What kind of market structure is this? Explain
your answer.
(b) (5 points) Though the stores sell the same book, there is
some differentiation. How can you tell from the payoffs matrix?
(c) (5 points) Is there an equilibrium (a Nash equilibrium)?
Explain.