Scenario: Two firms in a market sell identical goods and charge a price of $5 per unit. However, the cost of a crucial input used in producing these goods has increased. As a result, both firms are considering increasing the price of the good to $6. If the firms do not raise their prices at the same time, the firm that raises the price stands to lose market share. The payoff matrix shows the respective payoffs on the basis of the prices charged by each firm. Here, payoffs denote the number of units sold by each firm. 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 is true?

Question

Scenario: Two firms in a market sell identical goods and charge a price of $5 per unit. However, the cost of a crucial input used in producing these goods has increased. As a result, both firms are considering increasing the price of the good to $6. If the firms do not raise their prices at the same time, the firm that raises the price stands to lose market share. The payoff matrix shows the respective payoffs on the basis of the prices charged by each firm. Here, payoffs denote the number of units sold by each firm. 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 is true?

Quizplus · Accepted Answer

A Nash equilibrium is a concept within game theory where no player can benefit by changing strategies while the other players keep theirs unchanged. This does not necessarily mean it's the outcome from dominant strategies, but in many games, the Nash equilibrium is achieved when all players adopt their dominant strategy. Therefore, the statement that the dominant strategy equilibrium is the Nash equilibrium can be true, depending on the specifics of the game. Without the details of the payoff matrix or the strategies available to Firms 1 and 2, we cannot accurately assess the truth of options A, C, or D. However, the general relationship between dominant strategies and Nash equilibria as described in B is a fundamental concept in game theory.

Scenario: Two Firms in a Market Sell Identical Goods and Charge