In a two-firm industry, a Nash equilibrium occurs whenever:
A) each firm makes decisions without consideration of the other firm's actions.
B) the first firm makes decisions without consideration for the second firm's actions, whereas the second firm does consider the first firm's actions.
C) the second firm makes decisions without consideration for the first firm's actions, whereas the first firm does consider the second firm's actions.
D) each firm considers all possible actions by other firms and then chooses the best strategy.

Question

Quizplus · Accepted Answer

In a Nash equilibrium, each firm considers all possible actions by the other firm and then chooses the best strategy for itself. This is because in a Nash equilibrium, no firm can unilaterally improve its outcome by choosing a different strategy, given the other firm's strategy. Therefore, both firms must consider the other's best response when making their decision.

In a Two-Firm Industry, a Nash Equilibrium Occurs Whenever