Use the table below to answer the following questions.
Table 15.2.2

-Table 15.2.2 gives the payoff matrix in terms of economic profit for firms A and B when there are two strategies facing each firm: (1)charge a low price, or (2)charge a high price. The equilibrium in this game (played once)will be a dominant strategy equilibrium because
A)firm B will reduce profit by more than A if both charge a lower price.
B)firm B is the dominant firm.
C)the best strategy for each firm does not depend on the strategy chosen by the other firm.
D)there is no credible threat by either firm to "punish" the other if it breaks the agreement.
E)each firm will charge the higher price.

Question

Use the table below to answer the following questions.
Table 15.2.2
 
-Table 15.2.2 gives the payoff matrix in terms of economic profit for firms A and B when there are two strategies facing each firm: (1)charge a low price, or (2)charge a high price. The equilibrium in this game (played once)will be a dominant strategy equilibrium because
A)firm B will reduce profit by more than A if both charge a lower price. 
B)firm B is the dominant firm. 
C)the best strategy for each firm does not depend on the strategy chosen by the other firm. 
D)there is no credible threat by either firm to "punish" the other if it breaks the agreement. 
E)each firm will charge the higher price.

Quizplus · Accepted Answer

In a dominant strategy equilibrium, each player's best strategy does not depend on the strategy chosen by the other player. In this case, whether firm A chooses to charge a low or high price, the best strategy for firm B is always to charge a high price. Similarly, whether firm B chooses to charge a low or high price, the best strategy for firm A is always to charge a high price. Therefore, the answer is C.

Use the Table Below to Answer the Following Questions