CHAPTER 11: IMPERFECT cOMPETITION AND STRATEGIC BEHAVIOUR 11.3 The payoff matrix

Question

CHAPTER 11: IMPERFECT cOMPETITION AND STRATEGIC BEHAVIOUR 11.3 The payoff matrix below shows the payoffs to Firms A and B from producing different levels of output. The numbers in parentheses are (payoff to A, payoff to B). Firm B Produce Produce 1000 Units 2000 Units Produce 1000 Units(100, 100) (10, 150) Firm A Produce 2000 Units(150, 10) (30, 30) The Nash equilibrium in this game is (Firm A: produce 1000 units, Firm B: produce 1000 units). B) (Firm A: produce 2000 units, Firm B: produce 1000 units). C) (Firm A: produce 2000 units, Firm B: produce 2000 units). D) (Firm A: produce 1000 units, Firm B: produce 2000 units) E) non-existent.

Explanation / Answer

C is the correct option

Reason

It is the dominant strategy for both the players to produce 2000 units irrelevant to the point what the other firm is producing. So, the NE will be both producing 2000 units.

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