Use the following to answer questions:
-(Table: Two Rival Gas Stations) Look at the table Two Rival Gas Stations, which shows a payoff matrix for two gas stations in a small town. Each firm can set either a high price or a low price, and customers view these two firms as nearly perfect substitutes. Profits in each cell of the payoff matrix are given as (Swifty, Speedy). If each firm sets the price independently, the Nash equilibrium outcome will be:
A) $100, $100.
B) $150, $25.
C) $25, $150.
D) $50, $50.

Question

Use the following to answer questions: 
-(Table: Two Rival Gas Stations) Look at the table Two Rival Gas Stations, which shows a payoff matrix for two gas stations in a small town. Each firm can set either a high price or a low price, and customers view these two firms as nearly perfect substitutes. Profits in each cell of the payoff matrix are given as (Swifty, Speedy). If each firm sets the price independently, the Nash equilibrium outcome will be:
A) $100, $100. 
B) $150, $25. 
C) $25, $150. 
D) $50, $50.

Quizplus · Accepted Answer

In a Nash equilibrium, each player's strategy is optimal given the strategy of the other player. If both firms set a low price, neither can increase their profit by unilaterally changing their strategy, resulting in the equilibrium of $50, $50.

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