-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 above game,in the Nash equilibrium,
A) Firm A and Firm B are both making $40,000 in economic profit.
B) Firm A and Firm B are both making $55,000 in economic profit.
C) Firm A is making $60,000 and Firm B is making $55,000 in economic profit.
D) Firm A and Firm B are both making $60,000 in economic profit.
E) Firm A and Firm B are both making $35,000 in economic profit.

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 above game,in the Nash equilibrium,
A) Firm A and Firm B are both making $40,000 in economic profit. 
B) Firm A and Firm B are both making $55,000 in economic profit. 
C) Firm A is making $60,000 and Firm B is making $55,000 in economic profit. 
D) Firm A and Firm B are both making $60,000 in economic profit. 
E) Firm A and Firm B are both making $35,000 in economic profit.

Quizplus · Accepted Answer

In a Nash equilibrium, each firm chooses the best strategy, given the strategy chosen by the other firm. The only outcome where neither firm has an incentive to deviate from their chosen strategy, given the strategy of the other, is when both are making $40,000 in economic profit. This is because any deviation by one firm would lead to a lower payoff for that deviating firm.

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