-The only two firms in a market are trying to decide what price to charge.The payoff matrix for this duopoly game is shown above.The payoffs are thousands of dollars of economic profit.In the Nash equilibrium,Firm A will set a price of ________ and Firm B will set a price of ________.
A) $10; $20
B) $20; $10
C) $10; $10
D) $20; $20
E) $20; something, but more information is needed to determine Firm B's price

Question

-The only two firms in a market are trying to decide what price to charge.The payoff matrix for this duopoly game is shown above.The payoffs are thousands of dollars of economic profit.In the Nash equilibrium,Firm A will set a price of ________ and Firm B will set a price of ________.
A) $10; $20 
B) $20; $10 
C) $10; $10 
D) $20; $20 
E) $20; something, but more information is needed to determine Firm B's price

Quizplus · Accepted Answer

In a Nash equilibrium, each firm chooses the best strategy given the strategy chosen by the other firm. If both firms set a price of $10, neither can increase their payoff by unilaterally changing their price, making ($10, $10) the Nash equilibrium.

-The Only Two Firms in a Market Are Trying to Decide