In a Shopping Mall there are two tobacco stores. They each set a high price for their cigars, they each earn $50,000 a month. If they each set a low price, they each earn $25,000 a month. If one store sets a low price while the other sets a high price, the low- price store earns $70,000 while the
High- price store earns $10. Which of the following is a Nash equilibrium?
A)Both set a high price.
B)One firm sets a low price; the other high.
C)Both set a low price.
D)A mixed- strategy equilibrium.

Question

Quizplus · Accepted Answer

In a Nash equilibrium, no player can benefit by changing their strategy while the other players keep theirs unchanged. If both stores set a low price, neither can benefit by unilaterally changing to a high price, as it would reduce their earnings from $25,000 to $10,000.

In a Shopping Mall There Are Two Tobacco Stores