The diagram below shows demand and cost curves for a monopolistically competitive firm.
FIGURE 11- 3
-Consider an example of the prisoner's dilemma where 2 firms are making sealed bids on a contract and each firm is allowed to bid either $100 or $180.If both firms bid the same price,the job is shared equally and each firm earns half the value of its bid.Otherwise the lowest bidder wins the contract and receives the full value of its bid (and the other bidder earns zero).The non- cooperative outcome in this situation is

Question

The diagram below shows demand and cost curves for a monopolistically competitive firm.
  FIGURE 11- 3
-Consider an example of the prisoner's dilemma where 2 firms are making sealed bids on a contract and each firm is allowed to bid either $100 or $180.If both firms bid the same price,the job is shared equally and each firm earns half the value of its bid.Otherwise the lowest bidder wins the contract and receives the full value of its bid (and the other bidder earns zero).The non- cooperative outcome in this situation is

Quizplus · Accepted Answer

Both firms bidding $100 is the non-cooperative outcome because it is the Nash equilibrium. In a Nash equilibrium, neither firm can improve its payoff by unilaterally changing its strategy, given the strategy of the other firm. In this case, if one firm bids $100 and the other firm bids $180, the first firm will earn $0. If both firms bid $100, each firm will earn $50. Therefore, neither firm can improve its payoff by unilaterally changing its strategy, given the strategy of the other firm.

The Diagram Below Shows Demand and Cost Curves for a Monopolistically