Scenario: Consider the tragedy of the commons problem. Suppose two firms (Row Inc. and Colm Inc.) are involved in a production process that exploits a natural resource. Each firm has two options: 1 and 2. The matrix below shows the game matrix for these two firms. The first number listed in each cell is the payoff to Row Inc., and the second number listed is the payoff to Colm Inc.

-Refer to the scenario above.What is the equilibrium outcome in this case?
A) Both firms choosing Strategy 2
B) Both firms choosing Strategy 1
C) Row Inc. choosing Strategy 1 and Colm Inc. choosing Strategy 2
D) Colm Inc. choosing Strategy 1 and Row Inc. choosing Strategy 2

Question

Scenario: Consider the tragedy of the commons problem. Suppose two firms (Row Inc. and Colm Inc.) are involved in a production process that exploits a natural resource. Each firm has two options: 1 and 2. The matrix below shows the game matrix for these two firms. The first number listed in each cell is the payoff to Row Inc., and the second number listed is the payoff to Colm Inc.
 
-Refer to the scenario above.What is the equilibrium outcome in this case?
A) Both firms choosing Strategy 2 
B) Both firms choosing Strategy 1 
C) Row Inc. choosing Strategy 1 and Colm Inc. choosing Strategy 2 
D) Colm Inc. choosing Strategy 1 and Row Inc. choosing Strategy 2

Quizplus · Accepted Answer

In a typical game theory scenario, the equilibrium outcome is where both firms choose strategies that are best responses to each other. If both firms choosing Strategy 2 is the Nash Equilibrium, it means neither firm can benefit by unilaterally changing their strategy.

Scenario: Consider the Tragedy of the Commons Problem