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# Answer to Question #71298 in Microeconomics for GAGANDEEP deep SINGH

Question #71298
Two firms, VolgaBus and GMB, are competing to sell 100 buses to MetroTravel, a cityowned
bus company. They each submit a sealed bid to get the contract, with the contract
going to the lowest bid. Each firm has the option of submitting a low-price bid of $15 000 per bus, or a high-price bid of$20 000 per bus. In the event of a tie, the city will buy 50
buses from each firm.
a. Draw a payoff matrix for this simultaneous game. (4 marks)
b. Based on your matrix from part a., what will the Nash equilibrium be? Explain in detail
1
2017-11-27T12:47:07-0500
Two firms, VolgaBus and GMB, are competing to sell 100 buses to MetroTravel.
Each firm has the option of submitting a low-price bid of $15 000 per bus, or a high-price bid of$20 000 per bus. In the event of a tie, the city will buy 50 buses from each firm.
a. If one firm win the contract with low-price bid, it will receive 100*$15,000 =$1,500,000, another firm will receive $0. In the event of a tie at low-price bid each firm will receive 50*$15,000 = $750,000. In the event of a tie at high-price bid each firm will receive 50*$20,000 = $1,000,000. So, a payoff matrix for this simultaneous game is: VolgaBus\GMB Low-price bid High-price bid Low-price bid$750,000\$750,000$1,500,000\$0 High-price bid$0\$1,500,000$1,000,000\$1,000,000 b. Based on our matrix from part a., the Nash equilibrium will be a tie at low-price bid, so each firm will receive 50*$15,000 = \$750,000, because both firms will choose a low-price strategy to win a contract.

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