Table 15.2.6

-Refer to Table 15.2.6. Firms A and B can conduct research and development (R&D)or not conduct it. R&D is costly but can increase the quality of the product and increase sales. The payoff matrix is the economic profits of the two firms and is given above, where the numbers are millions of dollars. The Nash equilibrium
A)occurs when both A and B conduct R&D.
B)occurs when only A conducts R&D.
C)occurs when only B conducts R&D.
D)occurs when neither A nor B conduct R&D.
E)does not occur

Question

Table 15.2.6
 
-Refer to Table 15.2.6. Firms A and B can conduct research and development (R&D)or not conduct it. R&D is costly but can increase the quality of the product and increase sales. The payoff matrix is the economic profits of the two firms and is given above, where the numbers are millions of dollars. The Nash equilibrium
A)occurs when both A and B conduct R&D. 
B)occurs when only A conducts R&D. 
C)occurs when only B conducts R&D. 
D)occurs when neither A nor B conduct R&D. 
E)does not occur

Quizplus · Accepted Answer

In this payoff matrix, both A and B have a dominant strategy to conduct R&D, as it leads to higher profits regardless of the other firm's decision. Therefore, the Nash equilibrium occurs when both A and B conduct R&D.

Table 15.2.6 -Refer to Table 15.2.6. Firms a and B Can Conduct