Reference no: EM132116694

Question: If Bud and Wise in Problem play the game repeatedly, what is the equilibrium of the game?

Problem: Bud and Wise are the only two producers of aniseed beer, a New Age product designed to displace root beer. Bud and Wise are trying to figure out how much of this new beer to produce. They know:

(i)If they both produce 10,000 litres a day, they will make the maximum attainable joint economic profit of $200,000 a day, or $100,000 a day each.

(ii) If either firm produces 20,000 litres a day while the other produces 10,000 litres a day, the one that produces 20,000 litres will make an economic profit of $150,000 and the other will incur an economic loss of $50,000.

(iii) If both produce 20,000 litres a day, each firm will make zero economic profit.

Construct a payoff matrix for the game that Bud and Wise must play.