Table 16-4
In the following duopoly game, the two firms can either set the price of their product high or low.In this market, customers are very price sensitive: when one firm sets a low price it steals the majority of customers from its competitor.The game is represented in the table below. $\begin{array}{|c|c|c|c|}\hline&&\text { Firm B }\&&\text { High Price }&\text { Low Price }\
\hline \text { Firm A }&\text { High Price }&\text { Firm A gets \$500 } & \text { Firm A get \$300 } \
&& \text { Firm B gets \$500 } & \text { Firm B gets \$600 } \
\hline &\text { Low Price }&\text { Firm A gets \$600 } & \text { Firm A gets \$400 } \
&&\text { Firm B gets \$300 } & \text { Firm B gets \$400 } \
\hline
\end{array}$
-Refer to table 16-4.The Nash-equilibrium in this market is:
A)firm A gets $500, firm B gets $500
B)firm A gets $300, firm B gets $600
C)firm A gets $600, firm B gets $300
D)firm A gets $400, firm B gets $400

Question

Quizplus · Accepted Answer

The Nash equilibrium occurs when both firms choose the best strategy given the other firm's choice. In this case, if one firm chooses high, the other firm is better off choosing low. Therefore, in the Nash equilibrium, both firms will choose low. This results in both firms earning $400, which is the outcome in cell D. Therefore, the best choice for both firms is to set a low price.

Table 16-4 in the Following Duopoly Game, the Two Firms

Table 16-4
in the Following Duopoly Game, the Two Firms