Scenario: The market demand for soccer balls in a small town is 2,500 units, and there are two rival sports brands selling soccer balls in this town, Sporty and Go! The products of the two brands are identical.

-Refer to the scenario above.If the marginal cost of producing the last unit of the good is $40,a Nash equilibrium will occur when both firms charge a price of ________.

Question

Scenario: The market demand for soccer balls in a small town is 2,500 units, and there are two rival sports brands selling soccer balls in this town, Sporty and Go! The products of the two brands are identical.
 
-Refer to the scenario above.If the marginal cost of producing the last unit of the good is $40,a Nash equilibrium will occur when both firms charge a price of ________.

Quizplus · Accepted Answer

In a Nash equilibrium, both firms will set their prices such that neither has an incentive to deviate from their chosen price. Since the products are identical, both firms will aim to capture as much market share as possible. Therefore, they will need to charge a price that is competitive enough to attract customers but also high enough to generate a profit. If both firms charge a price higher than $40, customers may switch to a cheaper substitute or decide not to purchase the product at all, leading to a loss in revenue for both firms. Hence, the Nash equilibrium price is likely to be $40, which allows both firms to obtain a profit and attract customers.

Scenario: the Market Demand for Soccer Balls in a Small