Answer to Question #277727 in Microeconomics for Yonas

Question

Consider the following payoff matrix, where the payoff are profit/losses of a firm in millions

Firm B

Low Price High Price

Firm A Low Price (10, 10) (30, -10)

High Price (-10, 30) (40, 20)

Based on this payoff matrix in table, determine:

(i)                Whether firm A has a dominant strategy

(ii)               Whether firm B has a dominant strategy

(iii)              The Nash equilibrium if there is any.

Answer 1

Solution:

i.). Firm A has a dominant strategy by selecting a high price.

 

ii.). Firm B has no dominant strategy.

 

iii.). There is no Nash equilibrium since both cells does not present a dominant strategy.