Bud and Wise are the only two producers of aniseed beer, a New Age product designed to displace root...

Question

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.

Find the Nash equilibrium of the game that Bud and Wise play.

Robert · Accepted Answer

Let there are two strategies, 1 and 2, available to players, Bud and Wise. 
Strategy 1: To produce 20,000 litres of aniseed beer 
Strategy 2 : To produce 10,000 litres of aniseed beer. 
Please follow the pay-off matrix. Let the payoffs available to players are the economic profits 
earned by each player, given the output or ‘Strategy’ chosen by the other player.

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...

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