Figure: Payoff Matrix for Ajinomoto and ADM
(Figure: Payoff Matrix for Ajinomoto and ADM) Given the payoff matrix in the figure Payoff Matrix for Ajinomoto and ADM, the Nash equilibrium combination occurs when:
A)each firm produces 30 million pounds.
B)each firm produces 40 million pounds.
C)ADM produces 30 million pounds and Ajinomoto produces 40 million pounds.
D)ADM produces 40 million pounds and Ajinomoto produces 30 million pounds.

Question

Quizplus · Accepted Answer

In a payoff matrix, the Nash equilibrium occurs when neither player has an incentive to change their strategy given the choice of the other player. In this case, both firms have the highest profit when they both produce 40 million pounds. Therefore, the best choice for both firms is to produce 40 million pounds, making answer B the correct choice.