Figure 17-1. Two companies, ABC and XYZ, each decide whether to produce a high level of output or a low level of output. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies.

-Refer to Figure 17-1.The dominant strategy for ABC is to
A) produce high output, and the dominant strategy for XYZ is to produce high output.
B) produce high output, and the dominant strategy for XYZ is to produce low output.
C) produce low output, and the dominant strategy for XYZ is to produce high output.
D) produce low output, and the dominant strategy for XYZ is to produce low output.

Question

Figure 17-1. Two companies, ABC and XYZ, each decide whether to produce a high level of output or a low level of output. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies.
 
-Refer to Figure 17-1.The dominant strategy for ABC is to
A) produce high output, and the dominant strategy for XYZ is to produce high output. 
B) produce high output, and the dominant strategy for XYZ is to produce low output. 
C) produce low output, and the dominant strategy for XYZ is to produce high output. 
D) produce low output, and the dominant strategy for XYZ is to produce low output.

Quizplus · Accepted Answer

The dominant strategy for a player is the option that gives them the highest payoff regardless of the choices made by the other player. In this case, ABC's dominant strategy is to produce high output, as they earn $10 million in profit. Similarly, XYZ's dominant strategy is also to produce high output, as they earn $8 million in profit. Therefore, the best option for both companies is to produce high output.