Discuss the below:
Q: In Heifer's Breath, Wisconsin, there are two bakers, Anderson and Carlson.Anderson's bread tastes just like Carlson's - nobody can tell the difference.Anderson has a constant marginal cost of $1 per loaf of bread. Carlson has a constant marginal cost of $2 per loaf.Fixed costs are zero for both of them.The demand function for bread in Heifer's Breath is P = 6 - .01Q, where Q is the total number of loaves sold per day.
Define the game completely, including players, strategies, and payoffs.
i. Players: Anderson and Carlson
ii. Strategies: Each baker must simultaneously choose output: Q1 and Q2
iii. Payoffs: Profits: p1 = TR1 - TC1, p2 = TR2 - TC2
Given MRi = 6-.02Qi - .01Qj for both firms, find, interpret, and graph each firm's best response function.
What will be the outcome of the game? Please identify output strategies and their corresponding profit levels.Does your result seem reasonable given the set-up of the game?Using game theory jargon, explain how you determined the outcome of this game.
Compare and contrast the oligopoly outcome of this game to the perfectly competitive and monopolistic outcomes (for these cases assume MC = 1.5).Do your comparison's make sense?Explain.