Refer to the normal-form game of price competition shown below. $\begin{array}{l}
\quad\quad\quad\quad\quad\quad\text { Firm B}\
\text { Firm A}
\begin{array}{|l|l|l|}
\hline & \text { C } & \text { D }\
\hline & & \
\text { A } & 0,7 & 5,2\
\hline & & \
\text { B } & 5,1 & 0,8 \
\hline
\end{array}\end{array}$ Which of the following represents the set of possible pure strategy Nash equilibria?
A) {A, C}
B) {A, B}
C) {(A, C), (A, D), (B, C), (B, D)}
D) {C, D}

Question

Refer to the normal-form game of price competition shown below. $\begin{array}{l}
\quad\quad\quad\quad\quad\quad\text { Firm B}\
\text { Firm A}
\begin{array}{|l|l|l|} 
\hline & \text { C } & \text { D }\
\hline & & \
 \text { A } & 0,7 & 5,2\
\hline & & \
\text { B } & 5,1 & 0,8 \
\hline
\end{array}\end{array}$ Which of the following represents the set of possible pure strategy Nash equilibria?
A) {A, C}
B) {A, B}
C) {(A, C), (A, D), (B, C), (B, D)}
D) {C, D}

Quizplus · Accepted Answer

In a pure strategy Nash equilibrium, no player can unilaterally change their strategy to increase their own payoff. Based on this principle, we can eliminate option D, as neither player has a dominant strategy, meaning they can each improve their outcome by choosing a different strategy. Option A can also be eliminated, as if Firm A chooses strategy C, Firm B would switch to strategy B, resulting in Firm A getting a payoff of 0, which is worse than choosing strategy A. Thus, the only possible pure strategy Nash equilibria are (A, B) and (B, C). Therefore, option C is the correct answer as it includes all possible Nash equilibria.

Refer to the Normal-Form Game of Price Competition Shown Below