Question

Two firms face the following payoff matrix shown to the right. Given these profits, Firm 1 does not want to match Firm 2's price? This is false true Does either firm have a dominant strategy? Firm 1's dominant strategy is to set the high price does not exist is to set the low price What is the Nash equilibrium to this game? O A. The Nash equilibrium is for Firm 1 to pick the low price and for Firm 2 to pick the high price. OB. The Nash equilibrium is for both firms to pick the high price. O C. The Nash equilibrium is for Firm 1 to pick the high price and for Firm 2 to pick the low price. O D. The Nash equilibrium is for both firms to pick the low price. O E. This game does not have a Nash equilibrium. and Firm 2's dominant strategy does not exist is to set the low price is to set the high price Low Price Firm 2 High Price Low Price $0 $10 $0 Firm 1 $30 High Price $10 $5 $30 $35

Answer 1

Firm 1 does not want to match Firm 2's price. Both firms have a dominant strategy of setting the low price. The Nash equilibrium is for Firm 1 to pick the low price and for Firm 2 to pick the high price.

Step-by-step explanation:

Firm 1 does not want to match Firm 2's price. This statement is false. Both firms have a dominant strategy, which is to set the low price. The Nash equilibrium to this game is for Firm 1 to pick the low price and for Firm 2 to pick the high price. This is option A.

The question involves the concepts of oligopoly, dominant strategies, and Nash equilibrium as they apply to game theory within the realm of business. A complete payoff matrix is needed to accurately determine the dominant strategies for each firm and the Nash equilibrium of the game.

The question pertains to the concept of oligopoly and game theory, specifically the prisoner's dilemma scenario as it applies to firms in a market where they can set either high or low prices. Given the payoff matrix, whether Firm 1 wants to match Firm 2's price depends on their respective payoffs for different strategies. As per the information given, it seems that the statement about Firm 1 not wanting to match Firm 2's price can be true or false depending on the complete payoff matrix, which is not fully provided.

Determining a firm's dominant strategy requires analyzing the payoff matrix to see which option (high or low price) will always give the firm a higher profit, regardless of the other firm's action. The Nash equilibrium will be where neither firm has an incentive to unilaterally change its strategy given the strategy of the other firm. To determine the Nash equilibrium and dominant strategies, a full payoff matrix is necessary.