Scenario: Two factories dump their waste in a river. This has led to the contamination of the water, which is also used by the factories in their production processes. The matrix below shows the profits of the two firms based on their respective decisions to dump their waste in the river. Note that each firm's choice affects the other firm's profit. 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?
A) Firm 1's dominant strategy is not to dump its waste into the river.
B) The dominant strategy equilibrium is the Nash equilibrium.
C) The dominant strategy equilibrium is not the Nash equilibrium.
D) Firm 2's dominant strategy is not to dump its waste into the river.

Question

Scenario: Two factories dump their waste in a river. This has led to the contamination of the water, which is also used by the factories in their production processes. The matrix below shows the profits of the two firms based on their respective decisions to dump their waste in the river. Note that each firm's choice affects the other firm's profit. 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?
A) Firm 1's dominant strategy is not to dump its waste into the river. 
B) The dominant strategy equilibrium is the Nash equilibrium. 
C) The dominant strategy equilibrium is not the Nash equilibrium. 
D) Firm 2's dominant strategy is not to dump its waste into the river.

Quizplus · Accepted Answer

The dominant strategy equilibrium is a specific type of Nash equilibrium where each player's strategy is optimal regardless of the actions of other players. This means that in a dominant strategy equilibrium, each player is doing the best they can given the strategies of the other players, which is the definition of a Nash equilibrium.

Scenario: Two Factories Dump Their Waste in a River