AP Micro FRQ: Pricing a new phone

Short free-response question, 5 pointsAbout 12 minutes · 5 points

Payoff matrix in thousands of dollars, Alto's profit first. Alto High and Brio High: 60, 50. Alto High and Brio Low: 20, 70. Alto Low and Brio High: 80, 35. Alto Low and Brio Low: 30, 25.
Alto \ Brio	High price	Low price
High price	60, 50	20, 70
Low price	80, 35	30, 25

Two phone makers, Alto and Brio, each choose a high price or a low price for a new model. The payoff matrix shows each firm's weekly profit in thousands of dollars; the first number in each cell is Alto's profit and the second is Brio's. The firms choose at the same time, know all the information in the matrix, and do not cooperate.

(A) If Alto chooses a high price and Brio chooses a low price, what is Brio's profit? 1 point

(B) Does Alto have a dominant strategy? If so, identify it, using numbers from the matrix. 1 point

(D) Identify the Nash equilibrium. 1 point

(E) Suppose Alto's costs rise so that its profit falls by 25 thousand dollars in each cell where Alto charges a low price. Brio's profits do not change. Identify the new Nash equilibrium. 1 point