Final answer:
In the Nash equilibrium, firm A will set a price independently based on the anticipated response of firm B. However, firms in oligopoly may also engage in collusion or cutthroat competition. Collusive behavior involves firms agreeing to set prices, while cutthroat competition involves aggressive price-cutting and increased sales.
Step-by-step explanation:
In the Nash equilibrium based on the payoff matrix, firm A will set a price independently based on their analysis of the payoff matrix and the anticipated response of firm B. Firm A will consider what price firm B is likely to set and choose a price that maximizes its own profits.
However, it is important to note that in situations of oligopoly, firms may also engage in collusion or strategic cooperation to maximize their combined profits. This is known as collusive behavior, where firms agree to set prices and restrict competition.
In the absence of collusion, firms in an oligopoly may engage in cutthroat competition, where they vigorously compete by cutting prices and increasing sales. This can result in lower prices and higher quantities in the industry, but may lead to lower collective profits for the firms.