Use the following to answer questions 13-14:
Table 12.7
-(Table 12.7) Payoffs represent profits in millions of dollars. The Nash equilibrium:
A) does not exist.
B) occurs when both firms choose small expansion.
C) occurs when both firms choose large expansion.
D) occurs when both firms choose no expansion.

Question

Use the following to answer questions 13-14:
Table 12.7 
-(Table 12.7) Payoffs represent profits in millions of dollars. The Nash equilibrium:
A) does not exist. 
B) occurs when both firms choose small expansion. 
C) occurs when both firms choose large expansion. 
D) occurs when both firms choose no expansion.

Quizplus · Accepted Answer

In the Nash equilibrium, both firms would make the best decision based on the other firm's decision. If one firm chooses small expansion, the other firm would want to also choose small expansion to maximize profits. Therefore, the Nash equilibrium occurs when both firms choose small expansion, which results in the highest combined profits of $22 million.

Use the Following to Answer Questions 13-14