Two firms are competing in an oligopolistic industry. Firm 1 the larger of the two is contempla Show more Two firms are competing in an oligopolistic industry. Firm 1 the larger of the two is contemplating its capacity strategy which we can broadly characterize as aggressive or passive. The aggressive strategy involves a large increase in capacity aimed at increasing the firms market share while the passive strategy involves no change in the firms capacity. Firm 2 the smaller competitor is also pondering its capacity expansion strategy; it will also choose between an aggressive or passive strategy. The list below shows the corresponding profits associated with each outcome. Firm 1: Aggressive profit 36. Firm 2: Aggressive profit 12. Firm 1: Aggressive profit 30. Firm 2: Passive profit 13. Firm 1: Passive profit 33. Firm 2: Aggressive profit 10. Firm 1: Passive profit 25. Firm 2: Passive profit 9. (a) If both firms decide their strategies simultaneously what is the Nash Equilibrium (NE) of the game? (b) Continuing with the simultaneous move assumption does Firm 1 have a dominant strategy if so what is it? (c) Does Firm 2 have a dominant strategy if so what is it(d) Now if Firm 1 could move first with Firm 2 moving second i.e. reacting to Firm 1s move What is the Nash equilibrium (NE) of this sequential move game? *** please explain your answers and show the work*** Show less
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