Question

3. Bertrand Competition Suppose the market of fried chicken is dominated by five oligopolists: Macdonald, KFC, and Popeyes, Burger King, PizzaHut. The marginal production cost of Macdonald is: The marginal production cost of KFC is: The marginal production cost of Popeyes is: The marginal production cost of Burger King is: The marginal production cost of PizzaHut is: 10 SAR. 5 SAR 5 SAR 3SAR 3 SAR Identify Nash equilibrium below: 38. (10, 5, 5, 3, 3) can be a Nash equilibrium? 39. (10, 5, 5, 5, 3) can be a Nash equilibrium? 40. (10, 5, 5, 5, 5) can be a Nash equilibrium? 41. (10, 5, 3, 3, 3) can be a Nash equilibrium? 42. (10, 5, 3, 3, 3) can be a Nash equilibrium? 43. (10, 10, 5, 5, 3) can be a Nash equilibrium? a.Yes, b. No a.Yes, b. No a. Yes, b. No a. Yes, b. No a. Yes, b. No a. Yes, b. No

Answer 1

A Nash equilibrium is a solution to a game between two or more players where the players choose an optimal strategy considering other players choice and hence every player is a winner as no player has any incentive by switching strategy.

Thus, in the options given only (10,5,5,3,3) can be a Nah equilibrium as everybody is producing at their marginal production cost and no one is incurring losses even though they do not produce profits. At every other possible option given either one of the player is incurring profits like Popeyes in option 41 or the players are incurring losses like KFC in option 43, Burger King in 39, Pizza hut in 40.

In all the other cases other than that in 38, one or more than one player is at loss and hence that cannot be considered a Nash equilibrium.

The only Nash equilibrium for the game can be (10,5,5,3,3) as by playing anything other than this there is no incentive as some other player will face losses.