Which of the following statements is true of Nash equilibrium?
A)Each firm chooses its dominated strategy to arrive at a Nash equilibrium.
B)In a Nash equilibrium,both firms are always worse off than if they had colluded.
C)Each firm always chooses the strategy with the lower payoff to arrive at a Nash equilibrium.
D)In a Nash equilibrium,each firm's choice is the best one given the strategy of the other player.

Question

Quizplus · Accepted Answer

In a Nash equilibrium, each player's strategy is the best response to the strategy of the other player, meaning that no player can benefit from unilaterally changing their strategy. Therefore, each firm's choice in the Nash equilibrium is the best one given the strategy of the other firm. Option A is incorrect because choosing a dominated strategy will not lead to an equilibrium in game theory. Option B is also incorrect because there may be cases where the Nash equilibrium results in a better outcome for both firms than if they had colluded. Option C is incorrect because choosing a strategy with a lower payoff would not be the rational choice for a player in game theory.

Which of the Following Statements Is True of Nash Equilibrium