Table 16-2
In the following duopoly game, the two firms can either set the price of their product high or low.The game is represented in the table below. $\begin{array}{|c|c|c|c|}\hline&&\text { Firm B }\&&\text { High Price }&\text { Low Price }\
\hline \text { Firm A }&\text { High Price }&\text { Firm A gets \$1000 } & \text { Firm A get \$1250 } \
&& \text { Firm B gets \$1000 } & \text { Firm B gets \$1100 } \
\hline &\text { Low Price }&\text { Firm A gets \$800 } & \text { Firm A gets \$900 } \
&&\text { Firm B gets \$800 } & \text { Firm B gets \$900 } \
\hline
\end{array}$
-Refer to Table 16-2.The Nash equilibrium for this game is for:
A)both firms to sell the product at a low price
B)both firms to sell the product at a high price
C)firm A to sell at a low price and for firm B to sell at a high price
D)firm A to sell at a high price and for firm B to sell at a low price

Question

Quizplus · Accepted Answer

The dominant strategy for both firms is to choose the high price, as it results in a higher payoff regardless of the choice made by the other firm. However, when both firms choose the high price, they both end up with a lower payoff than if they both chose the low price. Therefore, the Nash equilibrium is for firm A to sell at a high price and for firm B to sell at a low price, as this results in the highest combined payoff for both firms.

Table 16-2 in the Following Duopoly Game, the Two Firms

Table 16-2
in the Following Duopoly Game, the Two Firms