Suppose Firm A and Firm B are considering whether to invest in a new production technology. For each firm, the payoff to investing (given in thousands of dollars per day)depends upon whether the other firm invests, as shown in the payoff matrix below.

What is the Nash equilibrium of this game?
A)Firm A invests, and Firm B doesn't invest.
B)Firm A doesn't invest, and Firm B invests.
C)Firm A doesn't invest, and Firm B doesn't invest.
D)Firm A invests, and Firm B invests.

Question

Suppose Firm A and Firm B are considering whether to invest in a new production technology. For each firm, the payoff to investing (given in thousands of dollars per day)depends upon whether the other firm invests, as shown in the payoff matrix below.  
  
What is the Nash equilibrium of this game?
A)Firm A invests, and Firm B doesn't invest. 
B)Firm A doesn't invest, and Firm B invests. 
C)Firm A doesn't invest, and Firm B doesn't invest. 
D)Firm A invests, and Firm B invests.

Quizplus · Accepted Answer

For both Firm A and Firm B, no matter what the other firm does, each does better by not investing. So this is the Nash equilibrium outcome.

Suppose Firm a and Firm B Are Considering Whether to Invest