The accompanying table shows two firms in a duopoly.Each firm makes its decision without knowledge of the other firm's decision.The payoffs for each firm represent economic profits,and each firm strictly prefers more economic profit than less.In this game,selling ________ subscriptions a month is a dominant strategy for Flixbuster and selling ________ subscriptions a month is a dominant strategy for Nextflix.

A) 200; 200
B) 200; 400
C) 400; 200
D) 400; 400
E) 100; 100

Question

The accompanying table shows two firms in a duopoly.Each firm makes its decision without knowledge of the other firm's decision.The payoffs for each firm represent economic profits,and each firm strictly prefers more economic profit than less.In this game,selling ________ subscriptions a month is a dominant strategy for Flixbuster and selling ________ subscriptions a month is a dominant strategy for Nextflix.

A) 200; 200 
B) 200; 400 
C) 400; 200 
D) 400; 400 
E) 100; 100

Quizplus · Accepted Answer

A dominant strategy is a decision that is the best option for a player regardless of the other player's decision. In this case, selling 400 subscriptions a month is a dominant strategy for both Flixbuster and Netflix.

If Flixbuster sells 400 subscriptions a month, regardless of Netflix's decision, it will earn a profit of $1,000. If Flixbuster sells 200 subscriptions a month and Netflix also sells 200 subscriptions a month, Flixbuster will earn a profit of $600, which is less than the profit from selling 400 subscriptions. If Flixbuster sells 200 subscriptions a month and Netflix sells 400 subscriptions a month, Flixbuster will earn a profit of $400, which is also less than selling 400 subscriptions.

The same logic applies to Netflix. If it sells 400 subscriptions a month, regardless of Flixbuster's decision, it will earn a profit of $1,000. Selling 200 subscriptions a month will result in a profit of $400 if Flixbuster also sells 200 subscriptions a month and a profit of $600 if Flixbuster sells 400 subscriptions a month, both of which are less than selling 400 subscriptions.

Therefore, selling 400 subscriptions a month is the best choice for both Flixbuster and Netflix.

The Accompanying Table Shows Two Firms in a Duopoly