(Table: Two Rival Gas Stations) Look at the table Two Rival Gas Stations.Swifty Gas and Speedy Gas are the only 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.The table shows the payoff matrix of daily profits that each firm would receive from its pricing decision, given the pricing decision of its rival.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

Quizplus · Accepted Answer

In this scenario, both firms have dominant strategies, meaning they will choose the option that yields the highest profit regardless of what their rival does. Swifty Gas's dominant strategy is to set a low price, as they will earn a profit of $100 regardless of whether Speedy Gas sets a high or low price. Likewise, Speedy Gas's dominant strategy is also to set a low price, as they will also earn a profit of $100 regardless of Swifty Gas's pricing decision. Therefore, the Nash equilibrium outcome is (Swifty, Speedy) = ($50, $50).

(Table: Two Rival Gas Stations) Look at the Table Two