Abbott and Costello are two firms that compete with each other in the market for ice-cream.They can price their product at a high,medium,or low price.The following matrix shows their profits from their respective pricing strategies.
Table 15-3
-Refer to Table 15-3.What is Abbott's dominant strategy?
A)Abbott does not have a dominant strategy.
B)Abbott's dominant strategy is selling at a high price.
C)Abbott's dominant strategy is selling at a low price.
D)Abbott's dominant strategy is selling at a medium price.

Question

Abbott and Costello are two firms that compete with each other in the market for ice-cream.They can price their product at a high,medium,or low price.The following matrix shows their profits from their respective pricing strategies.
Table 15-3 
-Refer to Table 15-3.What is Abbott's dominant strategy?
A)Abbott does not have a dominant strategy. 
B)Abbott's dominant strategy is selling at a high price. 
C)Abbott's dominant strategy is selling at a low price. 
D)Abbott's dominant strategy is selling at a medium price.

Quizplus · Accepted Answer

A dominant strategy is a strategy that is always optimal regardless of the opponent's strategy. In this case, Abbott's profit is highest when they price their product at a high price and Costello prices at a low price (Abbott's profit = $20). However, if Costello decides to price their product at a medium price instead of a low price, Abbott's profit would be highest if they price their product at a medium price (Abbott's profit = $15). Therefore, Abbott does not have a dominant strategy.

Abbott and Costello Are Two Firms That Compete with Each