Question

Firm A and Firm B are duopolists. They are choosing the price for which they will sell their products and the quantity they will sell. Both firms make their decisions simultaneously. The __________ in this situation occurs when Firm B chooses a pricing strategy given the strategy that Firm A chooses, and Firm A chooses a pricing strategy given the strategy that Firm B chooses.

a. Von Neumman
b. Nash
c. cartel
d. Morgenstern

Answer 1

Answer: Nash Equilibrium

Step-by-step explanation:

The Nash Equilibrium in this scenario refers to the price that either company will charge based on the price of the other company. This is because at this price, neither of them will stand to benefit anything if they deviate from it so they have to know the price charged by their competition to come up with theirs.

At Nash, firms B and A choose a pricing strategy given the strategy that the other chooses.