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. Refer to the nonrepeated game in the table. In Nash equilibrium, firm A will make an economic profit of
A)-$10.
B)$2.
C)$10.
D)$20.
E)$5.

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. Refer to the nonrepeated game in the table. In Nash equilibrium, firm A will make an economic profit of
A)-$10. 
B)$2. 
C)$10. 
D)$20. 
E)$5.

Quizplus · Accepted Answer

To find the Nash equilibrium, we need to identify the dominant strategy for each firm. For firm A, whether firm B charges a high or low price, it will be better off charging a low price (because -$10 is greater than -$20 or -$5). Similarly, for firm B, whether firm A charges a high or low price, it will be better off charging a low price (because -$10 is greater than -$20 or -$5). Therefore, both firms have a dominant strategy of charging a low price. When both firms choose this strategy, they both make an economic profit of $2, which is the Nash equilibrium payoff for firm A.

Use the Table Below to Answer the Following Questions