Two restaurants, in a small town, compete in the market for pizza. Each restaurant must decide whether to charge a high price or a low price. The potential monthly profits for these firms are shown below (in thousands of dollars).
FIGURE 10-4

-Referring to Figure 10-4, what can be said about dominant strategies?

Question

Two restaurants, in a small town, compete in the market for pizza. Each restaurant must decide whether to charge a high price or a low price. The potential monthly profits for these firms are shown below (in thousands of dollars).
FIGURE 10-4
 
-Referring to Figure 10-4, what can be said about dominant strategies?

Quizplus · Accepted Answer

Both restaurants have a dominant strategy. Restaurant A's dominant strategy is to charge a low price and Restaurant B's dominant strategy is to charge a high price. Regardless of what the other restaurant does, it is always better for each restaurant to follow their dominant strategy. Therefore, the best choice for both restaurants is to charge the price that corresponds to their dominant strategy.

Two Restaurants, in a Small Town, Compete in the Market