(Figure: Payoff Matrix for Airbus and Boeing) Which of the following options is a Nash equilibrium in the payoff matrix in the figure below?
A) Boeing produces and Airbus does not produce.
B) Boeing does not produce and Airbus produces.
C) Boeing does not produce and Airbus does not produce.
D) Either Boeing produces and Airbus does not produce or Boeing does not produce and Airbus produces.

Question

(Figure: Payoff Matrix for Airbus and Boeing) Which of the following options is a Nash equilibrium in the payoff matrix in the figure below? 
A) Boeing produces and Airbus does not produce. 
B) Boeing does not produce and Airbus produces. 
C) Boeing does not produce and Airbus does not produce. 
D) Either Boeing produces and Airbus does not produce or Boeing does not produce and Airbus produces.

Quizplus · Accepted Answer

In this payoff matrix, both Boeing and Airbus have a dominant strategy, which means they will choose their best option regardless of what the other firm does. Boeing's dominant strategy is to produce, as it results in a higher payoff regardless of what Airbus chooses. Likewise, Airbus's dominant strategy is to produce, for the same reason. Therefore, the only possible outcome is either Boeing produces and Airbus does not produce, or vice versa, making D the Nash equilibrium. Neither firm has an incentive to deviate from their dominant strategy in this situation. Option A and Option B are dominated strategies for Boeing and Airbus respectively, because they lead to a lower payoff than their dominant strategies. Option C is not a Nash Equilibrium since both firms have a dominant strategy to produce.

(Figure: Payoff Matrix for Airbus and Boeing) Which of the Following