-The above figure shows a payoff matrix for two firms,A and B,that must choose between a high-price strategy and a low-price strategy.The Nash equilibrium in this game
A) does not exist.
B) occurs when both firms set a low price.
C) occurs when both firms set a high price.
D) occurs when firm A sets a high price and firm B sets a low price.

Question

-The above figure shows a payoff matrix for two firms,A and B,that must choose between a high-price strategy and a low-price strategy.The Nash equilibrium in this game
A) does not exist. 
B) occurs when both firms set a low price. 
C) occurs when both firms set a high price. 
D) occurs when firm A sets a high price and firm B sets a low price.

Quizplus · Accepted Answer

In a Nash equilibrium, each player's strategy is optimal given the other player's strategy. Here, if one firm sets a high price, the other can benefit by setting a low price, attracting more customers. However, if both set low prices, neither can benefit by unilaterally changing their strategy without making less profit. Thus, the equilibrium is when both firms set a low price, as neither firm would benefit from changing their strategy while the other firm keeps their strategy unchanged.

-The Above Figure Shows a Payoff Matrix for Two Firms,A