A situation in which each firm selects its best action, given what its rivals are doing, is called a:
A) Nash equilibrium.
B) Cooperative equilibrium.
C) Stackelberg equilibrium.
D) zero sum game.

Question

Quizplus · Accepted Answer

A Nash equilibrium is a situation in which each firm's best action is to choose a certain strategy, given what the other firms are doing. This equilibrium is reached when no firm has an incentive to change its strategy given the choices of the other firms. Therefore, in order to maximize their individual profits, each firm will chose their best action based on what their competitors are doing.

A Situation in Which Each Firm Selects Its Best Action