(Figure: Payoff Matrix for Alex and Sybil) Use Figure: Payoff Matrix for Alex and Sybil. Alex and Sybil are the only producers of frozen yogurt in their town. Every week, each decides how much frozen yogurt to produce for the following week. The figure shows the profit per week earned by their two firms. The Nash equilibrium in this situation is:

A)Alex high; Sybil high.
B)Alex high; Sybil low.
C)Alex low; Sybil high.
D)Alex low; Sybil low.

Question

(Figure: Payoff Matrix for Alex and Sybil) Use Figure: Payoff Matrix for Alex and Sybil. Alex and Sybil are the only producers of frozen yogurt in their town. Every week, each decides how much frozen yogurt to produce for the following week. The figure shows the profit per week earned by their two firms. The Nash equilibrium in this situation is:
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A)Alex high; Sybil high. 
B)Alex high; Sybil low. 
C)Alex low; Sybil high. 
D)Alex low; Sybil low.

Quizplus · Accepted Answer

The Nash equilibrium occurs when both firms are producing at their best response to the other firm's production. In this case, Alex's best response to Sybil's production is to produce high (earning 6), and Sybil's best response to Alex's production is also to produce high (earning 3). Therefore, the Nash equilibrium is when Alex produces high and Sybil produces high, resulting in both firms earning a profit of 6.