The following table lists the payoffs of two firms adopting three possible advertising strategies:
Table 10-5
$\begin{array}{l}
\quad\quad\quad\quad\quad\quad\quad\quad\text { Firm } 2\
\begin{array} { | c | c | c | c | }
\hline \text { Firm 1 } & \text { High } & \text { Medium } & \text { Low } \
\hline \text { High } & 3,2 & 4,1 & 5,0 \
\hline \text { Medium } & 1,6 & 5,4 & 3,3 \
\hline \text { Low } & 0,4 & 5,5 & 6,2 \
\hline
\end{array}
\end{array}$
-Refer to Table 10-5. The (Nash) equilibrium pair of strategies for Firms 1 and 2 is:
A) Low advertising versus high advertising.
B) High advertising for both firms.
C) Medium advertising versus low advertising.
D) High advertising versus low advertising.
E) Medium advertising for both firms.

Question

The following table lists the payoffs of two firms adopting three possible advertising strategies:
Table 10-5
 $\begin{array}{l}
\quad\quad\quad\quad\quad\quad\quad\quad\text { Firm } 2\
\begin{array} { | c | c | c | c | } 
\hline \text { Firm 1 } & \text { High } & \text { Medium } & \text { Low } \
\hline \text { High } & 3,2 & 4,1 & 5,0 \
\hline \text { Medium } & 1,6 & 5,4 & 3,3 \
\hline \text { Low } & 0,4 & 5,5 & 6,2 \
\hline
\end{array}
\end{array}$
-Refer to Table 10-5. The (Nash) equilibrium pair of strategies for Firms 1 and 2 is:
A) Low advertising versus high advertising.
B) High advertising for both firms.
C) Medium advertising versus low advertising.
D) High advertising versus low advertising.
E) Medium advertising for both firms.

Quizplus · Accepted Answer

The Nash equilibrium is the pair of strategies that maximizes the payoff of each firm, given the strategy of the other firm. In this case, the Nash equilibrium is for both firms to choose the high advertising strategy. This is because, regardless of what the other firm does, each firm gets the highest payoff by choosing the high advertising strategy.

The Following Table Lists the Payoffs of Two Firms Adopting