Scenario: The payoff matrix given below shows the payoffs to two firms in millions of U.S. dollars for choosing two alternative strategies. The first number listed in each cell is the payoff to the row player, and the second number listed is the payoff to the column player.

-Refer to the scenario above.Which of the following will happen in equilibrium?
A) Firm A will choose Strategy X, and Firm B will choose Strategy Y.
B) Firm A will choose Strategy Y, and Firm B will choose Strategy X.
C) Both the firms will choose Strategy X.
D) Both the firms will choose Strategy Y.

Question

Scenario: The payoff matrix given below shows the payoffs to two firms in millions of U.S. dollars for choosing two alternative strategies. The first number listed in each cell is the payoff to the row player, and the second number listed is the payoff to the column player.
 
-Refer to the scenario above.Which of the following will happen in equilibrium?
A) Firm A will choose Strategy X, and Firm B will choose Strategy Y. 
B) Firm A will choose Strategy Y, and Firm B will choose Strategy X. 
C) Both the firms will choose Strategy X. 
D) Both the firms will choose Strategy Y.

Quizplus · Accepted Answer

In a payoff matrix, the Nash equilibrium is reached when both players choose their best strategy given the other's choice. In this case, if Firm A chooses Strategy X, Firm B's best response is to choose Strategy Y, as 6 is greater than 4. However, if Firm A chooses Strategy Y, Firm B's best response is still to choose Strategy Y, as 10 is greater than 7. Therefore, the Nash equilibrium is reached when Firm A chooses Strategy Y and Firm B chooses Strategy X. This is represented by option B.

Scenario: the Payoff Matrix Given Below Shows the Payoffs to Two