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

-A Nash equilibrium occurs when:
A)a unilateral move by a participant makes him better off.
B)one can deviate from the equilibrium and improve the outcome.
C)no one can move from the equilibrium and improve the outcome.
D)participants have an incentive to deviate from the equilibrium.
E)no one is better off.

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
 
-A Nash equilibrium occurs when:
A)a unilateral move by a participant makes him better off. 
B)one can deviate from the equilibrium and improve the outcome. 
C)no one can move from the equilibrium and improve the outcome. 
D)participants have an incentive to deviate from the equilibrium. 
E)no one is better off.

Quizplus · Accepted Answer

In a Nash equilibrium, no participant can improve their payoff by unilaterally changing their strategy. In other words, no one can move from the equilibrium and improve the outcome. Looking at the payoff matrix, Firm X and Firm Y both have a dominant strategy of advertising, which leads to a Nash equilibrium where the outcome cannot be improved by any unilateral move. Therefore, the best choice is C.

The Following Table Shows the Payoff Matrix of the Two