Use the table below to answer the following questions.
Table 14.2.2
-Table 14.2.2 gives the payoff matrix in terms of economic profit for firms A and B when there are two strategies facing each firm: (1)charge a low price,or (2)charge a high price.The equilibrium in this game (played once)is a dominant strategy equilibrium because
A)firm B reduces profit by more than firm A if both charge a lower price.
B)firm B and firm A are of different size.
C)the best strategy for each firm does not depend on the strategy chosen by the other firm.
D)there is no credible threat by either firm to "punish" the other if it breaks the agreement.
E)each firm will charge the higher price.

Question

Use the table below to answer the following questions.
Table 14.2.2 
-Table 14.2.2 gives the payoff matrix in terms of economic profit for firms A and B when there are two strategies facing each firm: (1)charge a low price,or (2)charge a high price.The equilibrium in this game (played once)is a dominant strategy equilibrium because
A)firm B reduces profit by more than firm A if both charge a lower price. 
B)firm B and firm A are of different size. 
C)the best strategy for each firm does not depend on the strategy chosen by the other firm. 
D)there is no credible threat by either firm to "punish" the other if it breaks the agreement. 
E)each firm will charge the higher price.

Quizplus · Accepted Answer

In a dominant strategy equilibrium, the best strategy for each firm does not depend on the strategy chosen by the other firm. In this case, regardless of what firm B chooses, the best strategy for firm A is to charge a high price. Similarly, regardless of what firm A chooses, the best strategy for firm B is to charge a high price. Therefore, the dominant strategy equilibrium is for both firms to charge a high price.

Use the Table Below to Answer the Following Questions