Table 17-17
This table shows a game played between two firms, Firm A and Firm B. In this game each firm must decide how much output (Q) to produce: 2 units or 3 units. The profit for each firm is given in the table as (Profit for Firm A, Profit for Firm B).
-Refer to Table 17-17. Which of the following outcomes represent the Nash equilibrium in this game?
A)Q=2 for Firm A and Q=3 for Firm B.
B)Q=3 for Firm A and Q=2 for Firm B.
C)There is no Nash equilibrium in this game since neither player has a dominant strategy.
D)Both a and b are correct.

Question

Table 17-17
This table shows a game played between two firms, Firm A and Firm B. In this game each firm must decide how much output (Q) to produce: 2 units or 3 units. The profit for each firm is given in the table as (Profit for Firm A, Profit for Firm B). 
-Refer to Table 17-17. Which of the following outcomes represent the Nash equilibrium in this game?
A)Q=2 for Firm A and Q=3 for Firm B. 
B)Q=3 for Firm A and Q=2 for Firm B. 
C)There is no Nash equilibrium in this game since neither player has a dominant strategy. 
D)Both a and b are correct.

Quizplus · Accepted Answer

A Nash equilibrium is a situation where neither player has an incentive to change their strategy given the other player's strategy. In this game, if Firm A chooses to produce 2 units, Firm B's best response is to produce 3 units, which results in profits of (6, 9) for A and B, respectively. Similarly, if Firm A chooses to produce 3 units, Firm B's best response is to produce 2 units, resulting in profits of (5, 10) for A and B, respectively. Therefore, both (Q=2 for Firm A and Q=3 for Firm B) and (Q=3 for Firm A and Q=2 for Firm B) are Nash equilibria. Neither player has a dominant strategy in this game, so there is no dominant strategy equilibrium.

Table 17-17 This Table Shows a Game Played Between Two Firms, Firm