The following table shows the payoff matrix of the two firms (Firm X and Firm Y), in dollars, when they advertise and when they do not advertise.Table 12.1

-Refer to Table 12.1. If firm Y follows its dominant strategy and firm X does not then:
A)firm X earns $150 and firm Y earns $200.
B)firm X earns $50 and firm Y earns $200.
C)firm X earns $150 and firm Y earns $180.
D)firm X earns $50 and firm Y earns $100.
E)firm X earns $150 and firm Y earns $100.

Question

The following table shows the payoff matrix of the two firms (Firm X and Firm Y), in dollars, when they advertise and when they do not advertise.Table 12.1
 
-Refer to Table 12.1. If firm Y follows its dominant strategy and firm X does not then:
A)firm X earns $150 and firm Y earns $200. 
B)firm X earns $50 and firm Y earns $200. 
C)firm X earns $150 and firm Y earns $180. 
D)firm X earns $50 and firm Y earns $100. 
E)firm X earns $150 and firm Y earns $100.

Quizplus · Accepted Answer

Firm Y's dominant strategy is to produce a high output, which earns it $200 regardless of Firm X's decision. If Firm X does not follow its dominant strategy and Firm Y does, it means Firm X chooses low output (since its dominant strategy would be high output for a payoff of $150 if Y also chooses high), resulting in Firm X earning $50.

The Following Table Shows the Payoff Matrix of the Two