Final answer:
The likely Nash equilibrium in a game where two firms decide on pricing strategies is both firms charging a low price, as this prevents either firm from benefitting by unilaterally changing their strategy while ensuring the mutual best response to competition.
Step-by-step explanation:
The student's question relates to identifying the Nash equilibrium in a payoff matrix for two competing firms, Alpha and Beta, that must decide on setting high or low prices. A Nash equilibrium is a situation in a game where each player's strategy is optimal given the strategies of other players, and no player has anything to gain by changing their strategy unilaterally. To determine the Nash equilibrium, each firm's strategy should be the best response to the other's. While the specific payoff matrix is not provided, we can apply general principles to speculate concerning the likely outcome.
Generally, if both firms cooperate to set high prices, they could potentially earn higher profits similar to a monopolistic scenario. However, in the oligopoly version of the prisoner's dilemma, the temptation for each firm is to deviate from the agreement by lowering prices to capture more market share, earning more profits individually but less collectively. Therefore, firms often end up competing with low prices, earning less profit. The Nash equilibrium would likely be both firms setting low prices to avoid being undercut, as this strategy combination wherein no firm would benefit by changing their price strategy while the other's strategy remains unchanged. Thus, the correct option is (a) Both firms charging a low price.