Joe is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a profit of $1,000. If Joe cuts his price to $2.90 and Sam continues to charge $3, then Joe's profit will be $1,350, and Sam's profit will be $500. Similarly, if Sam cuts his price to $2.90 and Joe continues to charge $3, then Sam's profit will be $1,350, and Joe's profit will be $500. If Sam and Joe both cut their price to $2.90, then they will each earn a profit of $900. If both players choose their dominated strategy they will each earn ________, and if both players choose their dominant strategy they will each earn ________.
A)$500; $1,350
B)$900; $1,350
C)$900; $1,000
D)$1,000; $900

Question

Quizplus · Accepted Answer

If both players choose their dominant strategy (cut the price to $2.90), then they each earn $900. If both choose their dominated strategy (keep the price at $3), then they each earn $1,000. Note that it is in their individual best interest to choose the dominant strategy, but it would be in their collective best interest to choose the dominated strategy.

Joe Is the Owner of the 7-11 Mini Mart, Sam