The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms). Table 11.2
-Refer to Table 11.2.If firm both firm A and firm B choose their dominant strategies then:
A)firm A makes a profit of $40 and firm B makes a profit of $45.
B)firm A makes a profit of $50 and firm B makes a profit of $45.
C)firm A makes a profit of $50 and firm B makes a profit of $40.
D)firm A makes a profit of $42 and firm B makes a profit of $40.
E)firm A makes a profit of $40 and firm B makes a profit of $20.

Question

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms). Table 11.2  
-Refer to Table 11.2.If firm both firm A and firm B choose their dominant strategies then:
A)firm A makes a profit of $40 and firm B makes a profit of $45. 
B)firm A makes a profit of $50 and firm B makes a profit of $45. 
C)firm A makes a profit of $50 and firm B makes a profit of $40. 
D)firm A makes a profit of $42 and firm B makes a profit of $40. 
E)firm A makes a profit of $40 and firm B makes a profit of $20.

Quizplus · Accepted Answer

To find the dominant strategies of each firm, we need to look at the payoffs for each firm at each pricing strategy. 
For Firm A, if Firm B prices at $200, choosing $500 will result in a profit of $50 (highest payoff). If Firm B prices at $500, choosing $200 will result in a profit of $40 (highest payoff). Therefore, the dominant strategy for Firm A is to choose $500. 
For Firm B, if Firm A prices at $200, choosing $500 will result in a profit of $45 (highest payoff). If Firm A prices at $500, choosing $200 will result in a profit of $40 (highest payoff). Therefore, the dominant strategy for Firm B is to choose $200. 
If both firms choose their dominant strategies, then Firm A will make a profit of $50 and Firm B will make a profit of $40, which corresponds to cell (2,1) in the payoff matrix.

The Table Below Shows the Payoff (Profit) Matrix of Firm