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  3. 1 30 points there are two firms considering introducing a...

Question: 1 30 points there are two firms considering introducing a...

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1. (30 points) There are two firms considering introducing a new product to the market. Each firm carn either set a high price or low price for its product. If both set a low price the market will be shared between the two firms. In this case, each firm expects to make a profit of $2m. If one firm sets a high price while the other sets a low price, the former is expected to make $1m and the latter is expected to make $5m. When both set a high price, again, the market will be shared and each firm expects to make a profit of $4m. If both firms know all this information and will choose their prices simultaneously, without knowing what the other chooses, what will be the outcome? What price would each firm pick?

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